Employment related taxes generally fit into three categories: l) those taxes you must pay for each employee; 2) taxes you must withhold from each employee’s pay; and, 3) workers’ compensation. Workers’ compensation is not actually a tax but an expense related to employment. Workers’ compensation rates vary depending on industry, occupation and risk factors involved. For more information concerning employment taxes contact the appropriate state or federal agency.

Payroll Taxes – Federal

For federal unemployment tax and federal income tax withholding information contact:

Internal Revenue Service
Tax Information
1-800-829-1040

An invaluable resource in insuring timely compliance in Federal Tax Administration is IRS Publication 15, Circular E-Employers Tax Guide. It is a 66-page document that covers all aspects of tax management. It is available on-line at: http://www.irs.gov/pub/irs-pdf/p15.pdf

IRS Publication 505, Tax withholding and Estimated Tax is available on-line at: http://www.irs.gov/pub/irs-pdf/p505.pdf

To order forms contact:

Internal Revenue Service
Forms Distribution Center
1-800-829-3676

Social Security Tax

The contribution rate, also known as the FICA tax rate, is 7.65% for employees and 15.30% for self-employed People. The rates are broken out as follows:
6.2% (Social Security portion) on earnings up to the maximum taxable amount ($87,000 in 2003)
1.45% (Medicare portion) on all earnings. Set by law, these rates haven't changed since 1990.

Maximum Earnings Taxable

Program	2001	2002	2003
Social Security	$ 80,400	$ 84,900	$ 87,000
Medicare	No Limit for any year after 1993

 

No Limit for any year after 1993The Social Security Administration has a web page designed especially for employers at:
http://www.ssa.gov/employer/

For social security tax (FICA) information contact:

Employer Reporting Service Center

Toll-free lines to help employers with wage reporting questions or problems.
1-800-772-6270   Monday – Friday 7 am to 7 pm, Eastern Standard Time
E-mail – employerinfo@ssa.gov

Payroll Taxes – State

For state unemployment tax information, contact:

Alabama Department of Industrial Relations
Unemployment Compensation
649 Monroe Street
Industrial Relations Building
Montgomery, AL 36131
(334) 242-8830 or http://dir.alabama.gov/uc

For workers’ compensation information, contact:

Alabama Department of Industrial Relations
Workmen’s Compensation Division
649 Monroe Street
Montgomery, AL 36131
(334) 242-2868 or http://dir.alabama.gov/wc/

For further information on Alabama Unemployment and Workers’ Compensation, see the Alabama Development Office publications, A Guide to Simplifying Alabama’s Employment Related Laws and Alabama Unemployment and Workers’ Compensation Manual. You may request copies by writing to the following address:

Research Division
Alabama Development Office
Center for Commerce Building, Suite 600
401 Adams Avenue
Montgomery, AL 36130
(334) 242-0400

In Alabama the taxes administered by the Individual and Corporate Tax Division include the following:

• Individual Income Tax
• Corporate Income Tax
• S- Corporations
• Business Privilege Tax
• Financial Institutions Excise tax
• Partnerships/LLC
• Fiduciary Tax
• Estate and Inheritance Tax

Income Tax

This tax is on the entire net income of every individual and corporation domiciled in Alabama, and of every non-resident deriving income from within Alabama. Income tax is required to be paid throughout the year either by withholding or estimated tax.

All employers in the state are required to withhold Alabama income tax. Whenever a new employee begins a new job, he or she is required to complete a form A-4, Exemption Certificate, and file it with the employer. The employer withholds Alabama Income Taxes on the basis of the information furnished by the employee on this exemption certificate. If an employer fails to secure a complete A-4 form from his employee, the employer must withhold Alabama Income Taxes on the basis of no exemptions. A Federal form W-4 will not be recognized in lieu of a form A-4. Every employer is required to secure completed exemption certificates from his employees, even though he may not be required to withhold any Alabama income tax. Tax withheld is based on withholding tables or the formula provided in the “State of Alabama Withholding Tax Tables and Instructions for Employers” publication. Assignment of an Alabama withholding tax number is required before an employer may submit Alabama Income Tax to the Department of Revenue. Employers file an application for this withholding tax number. The taxpayer must use this code number to identify all payments of Alabama withholding tax and include the number on all correspondence concerning the business’s income tax withholding accounts.

A declaration of individual estimated income tax is required of an individual who is subject to income tax if he or she anticipates having income from sources other than wages. In the case of a single or married person filing separately having non-wage income of $1,500 or more and in the case of a married person living with spouse and filing a joint return having non-wage income of $3,000 or more, a declaration of estimated income tax is required.

Domestic corporations (corporations created or organized under the laws of the State of Alabama) must pay a corporate income tax imposed on net income at the rate of 5%. Foreign corporations (corporations created or organized outside the State of Alabama) pay this tax at a rate of 5% also, and it is applicable to the net income from property situated within Alabama and/or from business done and transacted in Alabama.

(Note: There are special rules with respect to the apportionment of income in the case of foreign corporations having income from both within and outside the State of Alabama.)

The Individual and Corporate Tax Division can be reached at (334) 242-1103.

Corporate Income Tax

For tax years prior to 2001, the tax rate was 5%. As of January 1, 2001, the tax rate is 6.5%.

Business Privilege Tax

The Alabama Business Privilege and Shares Tax replaces the domestic and foreign Franchise Tax.
 
To determine the tax rate for the Business Privilege Tax, begin with the federal taxable income.  Then multiply that amount by the taxpayer's apportionment factor (Schedule B, line 9).  The resultant amount is used in the rate schedule to determine the appropriate rate.  Taxpayers having a loss for 1999 will use the lowest rate

Financial Institution Excise Tax

Any person, firm, corporation and any legal entity whatsoever doing business in this state as a national banking association, bank, banking association, trust company, industrial or other loan company or building and loan association, and such term shall likewise include any other institution or person employing moneyed capital coming into competition with the business of national banks, and shall apply to such person or institution regardless of what business form and whether or not incorporated, whether of issue or not, and by whatsoever authority existing.

Partnerships/LLCs

A single member LLC is not required to submit a separate Alabama Income Tax Return.