Before you start

An SSN or ITIN
Form W-4 for federal withholding and Alabama Form A-4 for state withholding
Records of foreign income and foreign financial accounts
The county's assessment notice for any property you own

Step-by-step

1
Complete the federal W-4 and Alabama's Form A-4
Alabama has its own withholding certificate, Form A-4, separate from the federal W-4. Filing only the federal one is a common cause of an unexpected Alabama bill at filing time. If your workplace is inside the city limits, the employer separately withholds Birmingham's 1% occupational tax — that is automatic and there is no form for you.
Via employerWho: YouFirst week of employment
2
Determine your US tax residency
The substantial presence test counts weighted days across three years to decide whether the US taxes your worldwide income or only US-source income. Your visa category does not decide this.
OnlineWho: You
3
Claim the federal income tax deduction on the Alabama return
Alabama is one of a handful of states where federal income tax paid is deductible in computing state taxable income, under constitutional Amendment 225. It meaningfully reduces the effective Alabama rate for higher earners and it is the single most valuable thing on an Alabama return. Software handles it; a hand-prepared return frequently misses it.
OnlineWho: You
4
Understand the occupational tax is a work tax, not a residence tax
Birmingham's 1% occupational tax applies to wages earned within the city limits regardless of where the earner lives — so a Mountain Brook or Hoover resident working downtown pays it, and a Birmingham resident working in a suburb generally does not. This is the same shape as an Ohio or Michigan city income tax. Confirm the current rate and any exemptions with the city's Tax and License Division.
Via employerWho: You
5
Check whether the overtime rules have changed again
Alabama exempted overtime pay from state income tax under Act 2024-437 for a defined period that ended on 30 June 2025, and the legislature enacted a narrower, capped overtime deduction in 2026. This has changed more than once in two years and the details matter if you are paid hourly. Read the Department of Revenue's own page rather than any article, including this one.
OnlineWho: You
6
Budget 10% sales tax, and note that food is taxed
Alabama's state sales tax is 4% on general merchandise and 2% on food for home consumption, with Jefferson County and the City of Birmingham stacking on top to around 10% inside the city. Crucially, the reduced grocery rate applies only to the state's share — the county and city rates still apply to food. For a modest household this is a bigger number than the income tax difference with neighbouring states.
OnlineWho: You
7
If you buy, apply for the homestead exemption with the county
Alabama's effective property tax rate is the lowest in the United States, and the homestead exemptions are unusually generous at the top end: a homeowner aged 65 or over, or permanently and totally disabled, is exempt from the state portion of property tax on their principal residence with no income limit, and someone 65-plus with combined taxable income under $12,000 can be exempt from the county portion too. Ordinary homestead exemptions for everyone else are smaller. All are applied for through the county — none arrives with the deed.
OnlineWho: You
8
File federal and Alabama returns, and an FBAR if foreign accounts exceed $10,000
The tax year is the calendar year and the Alabama deadline normally aligns with the federal 15 April. Aggregate foreign account balances over $10,000 at any point in the year trigger a FinCEN filing, separate from your tax return and with its own penalties.
OnlineWho: YouBy 15 April annually

Documents you’ll need

Form W-2 from each employer, issued by 31 January
Form 1099s for freelance, interest and investment income
Federal Form W-4 and Alabama Form A-4 filed with your employer
Passport and travel history for the substantial presence day count
County assessment notice and homestead exemption application, if you own property
Foreign account statements for FBAR reporting

Things most newcomers don’t know

Alabama's 5% rate arrives at $3,000, so everyone is a top-rate taxpayer.

The schedule looks progressive and is not, in any way that affects a working adult: the whole of it is spent by $3,000 of taxable income for a single filer. Anyone comparing Alabama with a flat-tax state should compare 5% with that state's flat rate, not with Alabama's headline 2%.

Source: Alabama Department of Revenue

Federal income tax is deductible on the Alabama return, which very few states allow.

Constitutional Amendment 225 lets you deduct federal income tax paid in computing Alabama taxable income. For a higher earner this materially reduces the effective state rate and it is what makes Alabama's 5% less punitive than it looks. It is also the item most often missed on a hand-prepared return.

Source: Alabama Department of Revenue

The occupational tax follows the job, not the house.

Birmingham's 1% is levied on wages earned inside the city limits regardless of residence, so moving to an Over the Mountain suburb does not avoid it if the job is downtown — while a Birmingham resident working in Hoover generally does not pay it. This is the Ohio and Michigan pattern rather than the Indiana one, and it is invisible in any state-level tax comparison.

Source: City of Birmingham — Tax and License Division

Property tax is the lowest in America, and at 65 the state portion vanishes entirely.

This is the genuine Alabama bargain. A homeowner aged 65 or over, or permanently and totally disabled, is exempt from the state portion of property tax on their principal residence with no income limit at all — and with combined taxable income under $12,000 the county portion can go too. It has to be applied for through the county. For anyone planning to retire in place, it is a materially different proposition from Texas or Iowa.

Source: Alabama Department of Revenue — homestead exemptions

Common mistakes to avoid

Reading Alabama's 2% starting rate as the rate you will pay. Above $3,000 it is 5%.
Filing only the federal W-4 and not Alabama's Form A-4.
Missing the federal income tax deduction on the Alabama return.
Assuming a suburban address avoids Birmingham's 1% occupational tax when the job is downtown.
Assuming groceries are untaxed — Alabama taxes food, and only the state's share is reduced.
Buying a home and never applying to the county for the homestead exemption, or reaching 65 and never claiming the age exemption.
Missing the FBAR because a home-country account did not feel 'foreign'.

Some of this may be out of date. Spotted something inaccurate? Help us keep it right for the next newcomer.