General Provisions.

Ala. Code tit. 40, ch. 18, art. 2, div. 1

in effect

Ala. Code § 40-18-70 Definitions.

40-18-70. Definitions. For the purpose of this article, the following terms shall have the respective meanings ascribed by this section: (1) EMPLOYEE. Employee as defined in the Internal Revenue Code, as amended from time to time. (2) EMPLOYER. Employer as defined in the Internal Revenue Code, as amended from time to time. An employer is required to withhold tax from the wages of employees to the extent that such wages are earned in Alabama, whether the employee is a resident or a nonresident of the state. (3) INTERNAL REVENUE CODE. The Internal Revenue Code of the United States, as amended from time to time. (4) PROVISIONAL CONSTRUCTION EMPLOYERS. A provisional construction employer is any employer, including members of its affiliated group as that term is defined in the Internal Revenue Code, that (i) employs 50 or more employees in a construction project for qualified property located in a tax increment district in which not less than 50 percent, by area, of the real property within the tax increment district is an enhanced use lease area, as these terms are defined in Section 40-9E-1, a construction project for a qualifying industrial or research enterprise described in Section 40-9B-3(a)(8)e., or a construction project, the cost of which is part of a qualifying entity’s capital cost, as these terms are defined in Section 40-9D-3, and (ii) has not registered in the tax year preceding the current tax year with the Alabama Department of Revenue for withholding tax purposes. If the provisional construction employer reports and pays all past withholding taxes due the state and continues to report and pay for a one-year period all withholding taxes due to Alabama, the employer will no longer be deemed to be a provisional construction employer. (5) WAGES. Wages as defined in the Internal Revenue Code, as amended from time to time. However, Alabama does differentiate from federal requirements for certain classes and amounts pursuant to departmental rules adopted via the procedures in Title 41. (Acts 1955, No. 289, p. 661, §1; Act 2007-199, p. 234, §5; Act 2008-275, p. 402, §9; Act 2010-184, p. 262, §3.)

Ala. Code § 40-18-71 Withholding Tax.

40-18-71. Withholding Tax. (a) Every employer, as defined under the laws of the United States in effect July 1, 1982, or as subsequently may be defined, with respect to income tax collected at source, making payment of wages as defined under such laws to employees, shall deduct and withhold upon such wages, reduced by the optional standard deduction provided in subsection (b) of Section 40-18-15 and the federal income tax withheld, a tax equal to two percent of the first $500 or less, four percent of the next $2,500 or less, five percent of the excess over $3,000, by which the amount of such wages paid or to be paid in the calendar year by such employer to such employee, exceeds the amount of the exemptions granted to such employee under Section 40-18-19 as claimed on a certificate to be filed with the employer in such form and containing such information and detail as may be prescribed by the commissioner, pursuant to the provisions of Section 40-18-73; provided, however, that in determining the amount to be deducted and withheld under this subsection (a), an employer shall allow as a credit against such amount the job development fee described in Section 41-10-44.7(b). (b) At the election of the employer with respect to such employee, the employer may deduct and withhold upon the wages paid to such employee a tax determined on the basis of tables to be prepared and furnished by the commissioner, which tax shall be substantially equivalent to the tax provided in subsection (a) of this section and which shall be in lieu of the tax required in such subsection. (c) In determining the amount to be deducted and withheld under this section, the wages may, at the election of the employer, be computed to the nearest dollar. (d) The department may, by regulations, authorize employers: (1) To estimate the wages which will be paid to any employee in any quarter of the calendar year; (2) To determine the amount to be deducted and withheld upon each payment of wages to such employee during such quarter as if the appropriate average of the wages so estimated constituted the actual wages paid; and (3) To deduct and withhold upon any payment of wages to such employee during such quarter such amount as may be necessary to adjust the amount actually deducted and withheld upon the wages of such employee during such quarter to the amount that would be required to be deducted and withheld during such quarter if the payroll period of the employee was quarterly. (e) The department is authorized to provide by regulation, under such conditions and to such extent as it deems proper, for withholding in addition to that otherwise required under this section and in cases in which the employer and the employee agree to such additional withholding. Such additional withholding shall, for all purposes, be considered the tax required to be deducted and withheld under this chapter. (Acts 1955, No. 289, p. 661, §2; Acts 1965, No. 748, p. 1354, §1; Acts 1982, No. 82-465, p. 759, §8; Acts 1982, 1st Ex. Sess., No. 82-667, p. 85, §8; Acts 1993, 1st Ex. Sess., No. 93-852, p. 95, §5.)

Ala. Code § 40-18-72 Included and Excluded Wages.

40-18-72. Included and Excluded Wages. If the remuneration paid by an employer to an employee for services performed during one half or more of any payroll period of not more than 31 consecutive days constitutes wages, all the remuneration paid by such employer to such employee for such period shall be deemed to be wages; but if the remuneration paid by an employer to an employee for services performed during more than one half of any such payroll period does not constitute wages, then none of the remuneration paid by such employer to such employee for such period shall be deemed to be wages. (Acts 1955, No. 289, p. 661, §3.)

Ala. Code § 40-18-73 Withholding Certificates.

40-18-73. Withholding Certificates. (a) Every employee, on or before the date of commencement of employment, shall furnish his or her employer with a signed Alabama withholding exemption certificate relating to the number of withholding exemptions which he or she claims, which in no event shall exceed the number to which the employee is entitled. In the event the employee inflates the number of exemptions allowed by this Chapter on Form A-4, the employee shall pay a penalty of five hundred dollars ($500) for such action pursuant to Section 40-29-75. (b) Due to the fact that the federal exemptions differ significantly from Alabama law, federal Form W-4 is not an acceptable filing under this section; rather Alabama Form A-4 must be utilized to comply with this section. The Department of Revenue may provide downloadable withholding forms in English and other languages on the department website. (c) In the event the employee fails to furnish the employer a signed Alabama Form A-4, the employer must withhold on such employee’s wages using no exemptions. (d) Withholding exemption certificates shall take effect upon the beginning of the employee’s first payroll period, or the first payment of wages made without regard to a payroll period, after the date on which the certificate is completed and submitted. (e) A withholding exemption certificate which takes effect under this section shall continue in effect with respect to the employer until another certificate takes effect under this section. If a withholding exemption certificate is submitted to take the place of an existing certificate, the employer, at his or her option, may continue the old certificate in force with respect to all wages paid on or before the first status determination date and adjust the withholding on January 1 or July 1, whichever occurs at least 30 days after the date on which the new certificate is furnished, or may adjust the withholding immediately. (f) If, on any day during the calendar year, the number of withholding exemptions to which the employee may reasonably be expected to be entitled at the beginning of his or her next taxable year is different from the number to which the employee is currently entitled, the employee shall, according to rules established by the department, provide the employer with a withholding exemption certificate relating to the number of exemptions which he or she claims with respect to the next taxable year, which shall not exceed the number to which he or she may reasonably be expected to be so entitled. Exemption certificates issued pursuant to this subsection shall not take effect with respect to any payment of wages made in the calendar year in which the certificate is submitted. (g) Whenever the number of exemptions of an employee either increases or decreases, the employee shall submit to the employer a new exemption certificate which accurately states the true number of exemptions to which that employee is entitled. (h) An employer must submit to the department a copy of any withholding exemption certificates where the employee claims eight or more exemptions. Employers failing to provide such withholding exemption certificates within 60 days of the date employment begins, shall be subject to the “failure to timely file” penalty of fifty dollars ($50) per certificate. (i) Withholding exemption certificates shall be in the form and contain that information which the department may require, and be submitted in accordance with regulations which the department shall prescribe. (Acts 1955, No. 289, p. 661, §4; Act 98-468, p. 903, §1; Act 2007-199, p. 234, §5; Act 2015-504, 1st Sp. Sess., §3.)

Ala. Code § 40-18-73.1 Provisional Employers.

40-18-73.1. Provisional Employers. (a) This section shall be known and may be cited as the “Provisional Construction Employer Withholding Act.” (b)(1) Subsequent to August 1, 2007, in addition to the other requirements contained in this title, all provisional construction employers shall be required to: a. Post a bond of not less than the average estimated annual withholding. b. Provide a minimum bond in all cases not to be less than five hundred dollars ($500) per employee. c. Provide the bond in the form of a surety bond, cash bond, or by other bonding or credit device deemed acceptable by the Commissioner of Revenue. (2) The Department of Revenue will issue a notice of compliance to those provisional construction employers that are in compliance with the registration and bond requirements contained in this section. (3) If the provisional construction employer fails to provide the notice of compliance to parties upon which they have engaged in contractual relationships, such parties must escrow 10 percent of the total amount of the contract for payment of taxes due the State of Alabama. (Act 2007-199, p. 234, §6.)

Ala. Code § 40-18-74 Payment of Amounts Withheld.

40-18-74. Payment of Amounts Withheld. (a) Every employer required to deduct and withhold tax under Section 40-18-71 shall for each quarterly period, on or before the last day of the month following the close of each quarterly period, file a return and pay to the Department of Revenue the tax required to be withheld under Section 40-18-71. Where the aggregate amount required to be deducted and withheld by any employer for either the first or second month of a calendar quarter exceeds $1,000 the employer shall by the fifteenth day of the succeeding month file a return and pay the aggregate amount to the Department of Revenue. The amount paid shall be allowed as a credit against the liability shown on the employer’s quarterly withholding return required by this section. Any employer required under this section to make monthly payments of the aggregate amount required to be deducted and withheld that does not file a return and pay the aggregate amount by the prescribed date shall be subject to the same penalties provided in Section 40-2A-11. (b) If the department, in any case, has reason to believe that the collection of the tax provided for in Section 40-18-71 is in jeopardy, it may require the employer to file a return and pay the tax at any time. (c) Every employer, who fails to withhold or pay to the department any sums required by this chapter to be withheld and paid, shall be personally and individually liable therefor to the State of Alabama, and any sum or sums withheld in accordance with the provisions of Section 40-18-71 shall be deemed to be held in trust for the state. (d) In the event an employer fails to withhold or pay to the department any amount required to be withheld under Section 40-18-71, that amount may be assessed against the employer in the same manner as is prescribed for the assessment of income tax under the provisions of Section 40-18-40. The employer may appeal from the final assessment in the same manner as is prescribed by law for appeals by the taxpayer. When no appeal is taken by the employer, execution may be issued upon the final assessment in the same manner as is provided by law for the issuance of an execution by the Department of Revenue. (e) The state shall have a lien upon all the property of any employer who fails to withhold or pay to the department sums required to be withheld under Section 40-18-71. If the employer withholds but fails to pay the amounts withheld to the department, the lien shall accrue as of the date the amounts withheld were required to be paid to the department. If the employer fails to withhold, the lien shall accrue at the time the liability of the employer becomes fixed. (Acts 1955, No. 289, p. 661, §5; Acts 1981, No. 81-102, p. 122; Act 98-502, p. 1083, §1; Act 99-367, p. 591, §1.)

Ala. Code § 40-18-75 Statement to Be Furnished Employee.

40-18-75. Statement to Be Furnished Employee. (a) Every person required to deduct and withhold from an employee a tax under Section 40-18-71 shall furnish to each such employee in respect of the remuneration paid by such person to such employee during the calendar year, on or before January 31 of the succeeding year, or, if his employment is terminated before the close of such calendar year, within 30 days from the day on which the last payment of remuneration is made, a written statement showing the following: (1) The name of such person; (2) The name of the employee and his Social Security account number; (3) The total amount of wages, as defined in Section 40-18-70; (4) The total amount deducted and withheld as tax under Section 40-18-71. (b) The statement required to be furnished by this section in respect of any wages shall be furnished at such other times, shall contain such other information and shall be in such forms as the department may by regulations prescribe. A duplicate of such statement, if made and filed in accordance with regulations prescribed by the department, shall constitute the return required to be made in respect of such wages under Section 40-18-26. (c) The department may promulgate regulations providing for reasonable extensions of time, not in excess of 30 days, to employers required to furnish statements under this section. (Acts 1955, No. 289, p. 661, §6.)

Ala. Code § 40-18-76 Liability for Tax Withheld.

40-18-76. Liability for Tax Withheld. An employer shall be liable for the payment of the tax required to be deducted and withheld under Section 40-18-71 and shall not be liable to any person for the amount of any such payment. (Acts 1955, No. 289, p. 661, §7.)

Ala. Code § 40-18-77 Refund to Employer.

40-18-77. Refund to Employer. (a) Where there has been an overpayment of tax under Section 40-18-71, refund or credit shall be made to the employer only to the extent that the amount of such overpayment was not deducted and withheld under Section 40-18-71 by the employer. (b) Any refund allowed by this section shall be administered in accordance with the procedures set out in Chapter 2A of this title. (Acts 1955, No. 289, p. 661, §8; Acts 1992, No. 92-186, p. 349, §55.)

Ala. Code § 40-18-78 Credit for Tax Withheld.

40-18-78. Credit for Tax Withheld. The amount deducted and withheld as tax under Section 40-18-71 during any calendar year upon the wages of any individual shall be allowed as a credit to the recipient of the income against the tax imposed by Section 40-18-5 for taxable years beginning in such calendar year. If more than one taxable year begins in such calendar year, such amount shall be allowed as a credit against the tax for the last taxable year so beginning. (Acts 1955, No. 289, p. 661, §9.)

Ala. Code § 40-18-79 Overpayment of Tax.

40-18-79. Overpayment of Tax. Where there has been an overpayment of any tax imposed under Section 40-18-71 or 40-18-80, the amount of such overpayment, if a petition for refund is timely filed or the department otherwise allows an automatic refund within that period, may be credited against any income tax or installment thereof then due from the taxpayer, and any balance shall be refunded to the taxpayer or if the taxpayer’s bank or other financial institution, pursuant to the State Financial External Lead Program or any other similar program selected by the department, certifies a petition for reimbursement that it has credited the taxpayer’s account in the amount of the refund due the taxpayer because the taxpayer’s refund was erroneously reversed by the department, then the balance shall be paid to the bank or other financial institution as reimbursement. Any costs or reimbursement incurred shall be paid from the same funds to which income tax revenues are deposited. (Acts 1955, No. 289, p. 661, §10; Acts 1957, No. 393, p. 539; Acts 1992, No. 92-186, p. 349, §56; Act 2017-227, §3.)

Ala. Code § 40-18-80 Payment of Estimated Tax by Individuals.

40-18-80. Payment of Estimated Tax by Individuals. (a) Individuals. Individuals shall pay estimated income tax in accordance with 26 U.S.C. § 6654 except: (1) The provisions of 26 U.S.C. § 6654(d)(2)(C)(iii) and 26 U.S.C. § 6654(f)(2) shall not apply; (2) Five hundred dollars ($500) shall be substituted for the amount provided for in 26 U.S.C. § 6654(e)(1). (b) For the purposes of this section: (1) Section 40-18-2 shall be substituted when 26 U.S.C. § 6654 refers to Chapter 1 and Chapter 2; (2) Section 40-18-71 shall be substituted when 26 U.S.C. § 6654 refers to Section 31; (3) Sections 40-18-21(a), 40-18-132, 40-18-136, 40-18-194, 40-18-220, 40-18-243, and 41-23-24 shall be substituted when 26 U.S.C. § 6654 refers to part IV of subchapter A of Chapter 1; (4) Commissioner shall be substituted when 26 U.S.C. § 6654 refers to Secretary; (5) The terms alternative minimum taxable income and adjusted self-employment income referred to in 26 U.S.C. § 6654(d)(2)(C)(i) shall be ignored for Alabama purposes. (Acts 1955, No. 289, p. 661, §11; Acts 1983, No. 83-741, p. 1214, §2; Acts 1992, No. 92-186, p. 349, §57; Act 2001-1088, 4th Sp. Sess., p. 1095, §3; Act 2010-685, p. 1150, §1.)

Ala. Code § 40-18-80.1 Payment of Estimated Tax by Corporations.

40-18-80.1. Payment of Estimated Tax by Corporations. (a) Corporations. Corporations shall pay estimated income tax in accordance with 26 U.S.C. § 6655 except: The provisions of 26 U.S.C. § 6655(g)(1)(A)(ii) through (iv) shall not apply. (b) For the purposes of this section: (1) Section 40-18-2 shall be substituted when 26 U.S.C. § 6655 refers to Chapter 1; (2) The terms alternative minimum taxable income and modified alternative minimum taxable income referred to in 26 U.S.C. § 6655(e)(2)(B)(i) shall be ignored for Alabama purposes; (3) Section 40-18-31 shall be substituted when 26 U.S.C. § 6655 refers to Section 11; (4) The terms 1201(a) and subchapter L of Chapter 1 referred to in 26 U.S.C. § 6655(g)(1)(A)(i) shall be ignored for Alabama purposes; (5) Sections 40-18-35(e), 40-18-136, 40-18-194, 40-18-220, 40-18-243, and 41-23-24 shall be substituted when 26 U.S.C. § 6655(g)(1)(B) refers to part IV of subchapter A of Chapter 1; (6) Alabama Affiliated Group shall be substituted when 26 U.S.C. § 6655 refers to Controlled Group; (7) The term carrybacks referred to in 26 U.S.C. § 6655(g)(2)(B)(iii) shall be ignored for Alabama purposes; (8) Commissioner shall be substituted when 26 U.S.C. § 6655 refers to Secretary. (Act 2001-1088, 4th Sp. Sess., p. 1095, §4; Act 2010-568, p. 1150, §1.)

Ala. Code § 40-18-81 Optional Short Form Tax.

40-18-81. Optional Short Form Tax. Any individual may elect to file a “short form” return provided by the Department of Revenue and pay any tax due; provided, that the individual does not have income from sources other than wages except for interest and dividend income of not more than $1,500. Items allowed on the short forms shall be determined by regulation under the provisions of the Alabama Administrative Procedure Act. (Acts 1955, No. 289, p. 661, §12; Acts 1965, No. 748, p. 1354, §2; Acts 1982, No. 82-465, p. 759, §9; Acts 1982, 1st Ex. Sess., No. 82-667, p. 85, §9; Act 98-502, p. 1083, §1.)

Ala. Code § 40-18-86 Sale or Transfer of Real Property and Associated Tangible Property by Nonresidents.

40-18-86. Sale or Transfer of Real Property and Associated Tangible Property by Nonresidents. (a) As used in this section, the term nonresident of Alabama shall include individuals, trusts, partnerships, corporations, and unincorporated organizations. Any seller or transferor who meets all of the following conditions and who provides the buyer or transferee with an affidavit signed under oath swearing or affirming that all of the following conditions are met will be deemed a resident for purposes of this section: (1) The seller or transferor has filed Alabama income tax returns or appropriate extensions have been received for the two income tax years immediately preceding the year of sale. (2) The seller or transferor is in business in Alabama and will continue substantially the same business in Alabama after the sale or the seller or transferor has real property remaining in the state at the time of closing of equal or greater value than the withholding tax liability as measured by the 100 percent property tax assessment of such remaining property. (3) The seller or transferor will report the sale on an Alabama income tax return for the current year and file it by the due date. (4) If the seller or transferor is a corporation or limited partnership, it is registered to do business in Alabama. (b)(1) Except as otherwise provided in this section, in the case of any sale or transfer of real property and related tangible personal property located in Alabama by a nonresident of Alabama, the buyer or transferee shall be required to withhold and remit to the Commissioner of Revenue on forms provided by the commissioner a withholding tax for individual buyers or transferees equal to three percent of the purchase price or consideration paid for the sale or transfer, and for corporate, partnership, or unincorporated association buyers or transferees equal to four percent of the purchase price or consideration paid for the sale or transfer; provided, however, that if the amount required to be withheld pursuant to this subsection exceeds the net proceeds payable to the seller or transferor, the buyer or transferee shall withhold and pay over to the commissioner only the net proceeds otherwise payable to the seller or transferor. Any buyer or transferee who fails to withhold such amount shall be personally liable for the amount of the tax. (2) The liability imposed by this subsection shall be paid upon notice and demand by the commissioner or the commissioner’s delegate and shall be assessed and collected in the same manner as all other withholding taxes imposed by this article. (c) If the seller or transferor determines that the amount required to be withheld pursuant to subdivision (1) of subsection (b) will result in excess withholding on any gain required to be recognized from the sale, the seller or transferor may provide the buyer or transferee with an affidavit signed under oath swearing or affirming to the amount of the gain required to be recognized from the sale, and any individual buyer or transferee shall withhold three percent of the amount of the gain required to be recognized, if any, and the corporate, partnership, or unincorporated association buyers or transferee shall withhold four percent of the amount of the gain required to be recognized, if any, stated in the affidavit rather than as provided in subdivision (1) of subsection (b). If, however, the amount required to be withheld pursuant to this subsection exceeds the net proceeds payable to the seller or transferor, the buyer or transferee shall withhold and pay over to the commissioner only the net proceeds otherwise payable to the seller or transferor. (d) Subsection (b) shall not apply where any of the following occur: (1) The real property being sold or transferred is a principal residence of the seller or transferor within the meaning of Section 121 of the Internal Revenue Code. (2) The seller or transferor is a mortgagor conveying the mortgaged property to a mortgagee in foreclosure or in a transfer in lieu of foreclosure with no additional consideration. (3) The transferor or transferee is an agency or authority of the United States of America, an agency or authority of the State of Alabama, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association, or a private mortgage insurance company. The commissioner may by rule set a purchase price amount below which no withholding is required. (e)(1) Unless otherwise provided, if the seller or transferor is a partnership or Subchapter “S” corporation or other unincorporated organization which certifies to the buyer or transferee that a composite return is being filed on behalf of the nonresident partners, shareholders, or members and that the partnership, Subchapter “S” corporation, or unincorporated organization remits the tax on the gain on behalf of the nonresident partners, shareholders, or members, the buyer or transferee shall not be required to withhold as provided in this section. Any nonresident partner, shareholder, or member who falsely certifies that a composite return is being filed on behalf of such partner, shareholder, or member shall be liable for a penalty in the amount of five hundred dollars ($500) or 10 percent of the amount required to be withheld, whichever is greater. (2) The penalty imposed by this subsection shall be paid upon notice and demand by the commissioner or the commissioner’s delegate and shall be assessed and collected in the same manner as the withholding tax imposed by this article. (f) Every buyer or transferee of real property located in Alabama who is required to deduct and withhold the withholding tax imposed by subsection (b) shall file the required return and remit payment to the Department of Revenue on or before the last day of the calendar month following the calendar month within which the sale or transfer giving rise to the withholding tax occurred. (Act 2008-504, p. 1114, §1.)

Source: Alabama Legislature (alison.legislature.state.al.us)URL: https://alison.legislature.state.al.us/code-of-alabamaFetched: 10/20/2026