Alabama

Discussion

Alabama: Tax Withholding Required Only for Work Performed in the State

On August 25, 2026, the Alabama Department of Revenue (ALDOR) issued a Notice clarifying that Alabama income tax withholding applies only to wages attributable to services physically performed within Alabama. Employers are not required to withhold Alabama income tax for employees who live and work entirely in another state, even if the employer is based in Alabama. The ALDOR also confirmed it will not follow the Alabama Tax Tribunal’s 2023 ruling in Bollinger v. State of Alabama Department of Revenue, which had created a “convenience of the employer” rule that could have required withholding based on the employer’s location rather than where work was actually performed. The Notice does reference a 30-day safe harbor, that went into effect January 1, 2026, which exempts certain out-of-state employees (and their employers from related withholding obligations) when those employees perform services in Alabama for 30 or fewer days in a calendar year. Alabama-based employers with remote workers in other states should review their current withholding practices in light of this guidance and consult with a qualified tax advisor as needed.

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