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Alabama has a 5% top income tax rate and Birmingham adds a 1% occupational tax. Huntsville is a major aerospace and defense tech hub. Rippling handles ALDOR, ADOL, and Birmingham occupational tax filings.
Alabama is a Southeast economy with strengths in aerospace and defense (Huntsville — NASA, Redstone Arsenal), automotive manufacturing (Mercedes-Benz, Honda, Hyundai), steel, and financial services. Alabama payroll is relatively straightforward: a progressive income tax (top rate 5%), Birmingham occupational tax (1%), and workers’ compensation required for employers with 5+ employees. Alabama is a right-to-work state with no state-mandated paid leave.
Rippling’s Alabama payroll module provides:
| Contribution | Rate | Notes |
|---|---|---|
| FUTA | 6.0% (net 0.6%) | After SUTA credit; first $7,000 |
| AL SUI (ADOL) | New employer 2.7% | On first $8,000 of wages (2024) |
| Social Security | 6.2% | Up to $168,600 (2024) |
| Medicare | 1.45% | No wage base limit |
| Workers’ Compensation | Varies by risk class | Required for 5+ employees (most industries) |
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| Contribution | Rate | Notes |
|---|---|---|
| Federal Income Tax | Graduated 10–37% | Per W-4 |
| Social Security | 6.2% | Up to $168,600 (2024) |
| Medicare | 1.45% + 0.9% surtax | Surtax above $200K single |
| Alabama State Income Tax | 2%–5% | 3-bracket progressive; top rate 5% on income above $3,000 single |
| Birmingham Occupational Tax | 1% | On wages earned within Birmingham city limits |
| Alabama Income (Single) | AL Rate |
|---|---|
| Up to $500 | 2% |
| $501–$3,000 | 4% |
| Above $3,000 | 5% |
Plus Birmingham 1% occupational tax for Birmingham work locations. AL withholding remitted to ALDOR. Annual A-3 reconciliation.
Final Pay: Alabama requires final pay on the next regular payday. Accrued vacation payout governed by employer written policy — a written forfeiture policy is generally enforceable in Alabama.
Birmingham levies a 1% occupational tax on all wages earned within city limits, withheld by the employer and remitted quarterly to the City of Birmingham. This is separate from Alabama state income tax. Other Alabama cities may also impose occupational taxes — check work location. Rippling tracks Birmingham occupational tax for employees with Birmingham work locations.
Alabama’s income tax has 3 brackets with a top rate of 5% on income above $3,000 (single) — a very low threshold for the top rate. While the top rate (5%) is moderate, it applies to most working Alabamians’ wages. Alabama has a standard deduction and personal exemption that partially offset the low bracket thresholds.
Alabama’s minimum wage is $7.25/hour — matching the federal minimum. Alabama has preempted local minimum wage ordinances (Birmingham’s 2016 local minimum wage was struck down by the state legislature). The federal floor applies statewide.
Huntsville, Alabama has emerged as one of the US’s most significant aerospace, defense, and technology hubs — home to NASA’s Marshall Space Flight Center, Redstone Arsenal, Boeing, Lockheed Martin, and a growing tech startup community. Huntsville engineering and defense technology salaries benchmark to national defense industry rates, not general Alabama averages.
