If you are not an Alabama resident but make money within Alabama's borders, you still must file an Alabama tax return. Use Form 40-NR for non-residents and report both your Alabama income and your total income. Alabama taxes are based on how much of your income is earned within the state. The tax form is similar to the regular Alabama tax form except that you report only the percentage of your income that you made in Alabama.
If you are filing jointly, in Step 6, divide only your portion of your and your spouse's federal adjusted gross income by your and your spouse's federal total adjusted gross income. Multiply this percentage by your federal tax liability to determine your federal deduction on your Alabama taxes.
Getting Started With Form 40-NR
Obtain Form 40-NR from the Alabama Department of Revenue. You can access and fill out this form online or request a hard copy from the Department of Revenue. Mark your filing status on the top of the form. You may file as head of family if you paid at least half the expenses to maintain your home and lived with a relative that you can claim as a dependent. You must use the same filing status that you used on your federal income tax return.
List all sources of income and the amount of income from each on the first part of the form. Jump to the second page of the form where you calculate adjustments to income so that you can put your total adjustments on the proper line of the first page of the form. Report both Alabama and total income on the form. Divide your adjusted Alabama income by your adjusted total income to determine your Alabama percentage of income.
Working With Deductions
Itemize deductions using Schedule A, attached to Form 40-NR, or take the Alabama standard deduction for 2017 . The standard deduction is between $2,000 and $7,500 depending upon your income and filing status. You can find your standard deduction on the standard deduction table provided with the instructions to the form. Multiply the personal exemption amount listed on Form 40-NR for your filing status by the Alabama percentage of income you calculated in Step 3. This is the personal exemption you may claim on Line 15.
Complete Part IV on page 2 of Form 40-NR to calculate the percentage of your federal taxes due that you may deduct from your income on your Alabama tax return. Multiply your federal tax liability by your Alabama income percentage to get your federal deduction amount. Add your federal deduction amount to your standard deduction for Alabama, or total itemized deductions for Alabama, to determine your entire Alabama deduction amount. Subtract this deduction from your Alabama gross income.
Calculating Your Tax Obligations
Calculate your tax owed using the tax tables found in the instructions for Form 40-NR. Calculate how much tax was withheld or paid as estimated tax to Alabama and subtract this amount from the tax you owe. Report how much tax you owe the Alabama Department of Revenue or refund they owe you.
Sign and date the form. Send it to the Alabama Department of Revenue along with any tax you owe.
- If you are filing jointly, in Step 6, divide only your portion of your and your spouse's federal adjusted gross income by your and your spouse's federal total adjusted gross income. Multiply this percentage by your federal tax liability to determine your federal deduction on your Alabama taxes.
Jack Ori has been a writer since 2009. He has worked with clients in the legal, financial and nonprofit industries, as well as contributed self-help articles to various publications.