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Taxation of Employee Compensation: Alabama

Taxation of Employee Compensation 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


  • Employer provided moving expense reimbursements are not taxable in Alabama provided the new job location is within the state. See Moving Expenses.
  • Educational expenses are only deductible if the education is required by law to keep a current position. See Educational Assistance.
  • In Alabama, up to $25,000 received as severance pay by an employee who, as a result of administrative downsizing only, is terminated, laid-off, fired, or displaced from his or her employment is exempt from Alabama income tax withholding. Employers must apply for approval to exempt the severance payments. See Severance Pay.