Alabama Salary Paycheck Calculator
As a business owner, you know there’s more to paying employees than simply handing over a paycheck. It involves tracking hours, paying taxes, and filing forms with local, state, and federal government agencies. And don’t forget about all the state and federal laws you need to follow.
Whether you’re new to running payroll or you’ve been at it for a while, here are the top payroll taxes and laws you need to have a handle on if you run a business in Alabama.
What federal payroll taxes should I know about?
There are four key federal payroll taxes that impact your business. Employees pay federal income tax and Additional Medicare tax, while employers pay federal unemployment tax (FUTA). Both employees and employers pay FICA tax.
Employee-paid federal payroll taxes
Federal income tax
Every employee is required to fill out a Form W-4 when they begin working at your company. The withholding allowance they claim helps you determine how much federal income tax to withhold from their paychecks.
Employees should fill out a new W-4 whenever they want to change their withholding amount. Learn more about how to fill out Form W-4.
Additional Medicare taxYou’ll need to withhold this 0.9% tax on any wages paid to an employee that exceeds $200,000 in a year.
Employer-paid federal payroll taxes
Like the state, the federal government also has an unemployment tax. It’s called FUTA and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but most employers only have to pay 0.6% each year.
Federal payroll taxes paid by employees and employers
The Federal Insurance Contributions Act (FICA) tax is made up of the Medicare tax and the Social Security tax. In 2022, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $147,000. The Medicare tax requires each to contribute 1.45% of all wages. See the IRS webpage for details, like maximum thresholds.
What about Alabama-specific payroll taxes?
There are three payroll taxes in Alabama. Employees pay state and local income taxes, and employers pay a state unemployment compensation tax.
Employee-paid payroll taxes
State income tax
Alabama is one of many states that has a state income tax on employee earnings. You must withhold this tax from all employees who are state residents.
There are four main exceptions to this rule: 1) Employees who provide domestic services in private homes, 2) merchant seaman, 3) ordained ministers completing ministerial duties, and 4) agricultural employees are all exempt from Alabama state income tax withholding.
The amount of tax you need to withhold is based on inputs from the Alabama Employee’s Withholding Tax Exemption Certificate (Form A4). For assistance calculating the withholding amount, consult the Alabama tax tables and instructions. You can also have a payroll system or accountant do the calculations for you.
You don’t need to submit the Form A4 to the Alabama Department of Revenue, but make sure to keep a copy of it in your files.
Local income tax
Some cities and towns in Alabama also levy a local income tax, which can have different names. For example, in the City of Birmingham, it’s called the Occupational Tax.
Regardless of the name, it’s important to know that you withhold local income tax from employees’ earnings. Check with your local government to see if your city or town levies a local income tax and what the tax rate is.
Employer-paid payroll taxes
Alabama Unemployment Compensation
In addition to the Alabama payroll taxes that you need to withhold from your employees’ paychecks, you’re also responsible for paying Unemployment Compensation (UC) tax every year on the first $8,000 of each employee’s earnings.
If you’re a new Alabama employer, your 2022 rate is set to 2.7%. Otherwise, your tax rate is specific to your business and can change each year. In 2022, the SUI tax rates range from 0.64% to 6.24%.
You can obtain your unique rate by logging in to your account with the Alabama Department of Labor.
If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto.
Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information.
Federal salary threshold
The federal salary threshold is now $684 per week (equivalent to $35,568 per year for a full-year worker). The Department of Labor permits employers to count some bonuses, commissions, and other incentive payments toward meeting the standard salary level (up to 10%). Employees who earn at least $107,432 per year may qualify as “highly compensated.” See this Department of Labor fact sheet for details.
Other Alabama paycheck rules to know
Alabama doesn’t have any state-specific laws that govern pay or wage issues. Instead, you’ll need to comply with the U.S. Department of Labor laws.
However, here are some key requirements to keep in mind:
- Employers are not required to provide paid vacation, paid sick leave, or holiday pay.
- There is no requirement to provide pay stubs to employees. However, you are required to keep accurate records of hours worked and wages paid.
- Severance pay is not required.
- Employers can issue final paychecks immediately. However, it’s not required. The only requirement is that final paychecks are paid on the next regularly scheduled pay date.
One more thing: Make sure to report new employees to Alabama’s Department of Labor within seven days of hire to avoid getting fined. (The reporting requirement is twice per month if you choose to report new hires electronically.)