Alabama does not tax all income that may be reported on your federal return. This section is used to identify income included in your Federal Adjusted Gross Income (AGI) that is not taxable by Alabama and should not be included when calculating Alabama taxable income.
Pathway to this entry is:
Alabama State Return > Basic Information > Income Reported on Your Federal Return but Not Reported on Your Alabama Return
When Should I Complete This Section?
Complete this section if you have income reported on your federal return that Alabama does not tax or that should be excluded from Alabama income.
Entering this information ensures that only income subject to Alabama tax is included on your Alabama return.
What Types of Income May Be Entered Here?
Examples may include:
- Income that is exempt from Alabama income tax.
- Income taxable on the federal return but not taxable by Alabama.
- Income allocated to another state when not subject to Alabama taxation.
- Other adjustments allowed under Alabama law.
Only enter income that should be excluded from Alabama taxable income.
What Income Is Normally Reported on the Alabama Return?
Most income reported on your federal return is also reported on your Alabama return, including:
- Wages and salaries.
- Interest income.
- Dividend income.
- Business income.
- Rental income.
- Royalties.
- Capital gains.
- Pension and retirement income that is taxable by Alabama.
- Other taxable income.
Alabama Form 40 instructions indicate that income from rents, royalties, gains from the sale of property, and other taxable income not otherwise reported must be included on the Alabama return when applicable.
What Information Will I Need?
You may need information from:
- Forms W-2.
- Forms 1099.
- Schedule C.
- Schedule E.
- Schedule K-1.
- Federal Schedule 1.
- Other supporting federal schedules.
Review your federal return carefully to determine whether any income should be excluded from Alabama taxation.
How Does This Affect My Return?
Income entered in this section may:
- Reduce Alabama taxable income.
- Lower Alabama tax liability.
- Increase an Alabama refund.
- Prevent income from being taxed by Alabama when it is not subject to Alabama tax.
Important Information
- Do not enter income here simply because it was earned outside Alabama.
- Only enter income that is specifically not taxable by Alabama.
- Most federal income remains taxable for Alabama purposes unless Alabama law provides an exclusion.
- Supporting documentation should be retained with your tax records.
- Incorrect entries in this section may affect your Alabama tax calculation.
Additional Information
If you are unsure whether income reported on your federal return should also be reported on your Alabama return, review the income source carefully and verify whether Alabama allows that income to be excluded before making an entry in this section.