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Taxation of Employee Benefits: Alabama

Taxation of Employee Benefits requirements for other states

Federal law and guidance on this subject should be reviewed together with this section.

Author: Vicki M. Lambert, The Payroll Advisor


  • If an employee who participates in a § 125 cafeteria plan has the option of receiving a benefit or cash, the salary deferral is reportable as income for Alabama unemployment insurance purposes. See Salary Deferrals to IRC § 125 Cafeteria Plans and § 401(k) Plans.
  • Same-sex marriage is legal in Alabama and, based on the US Supreme Court ruling in Obergefell v. Hodges, the value of health insurance benefits provided to an employee's same-sex spouse are not taxable in Alabama. However, the value of such benefits provided to an employee's civil union partner or domestic partner remain taxable. See Same-Sex Couple Health Insurance Benefits.