The Alabama personal exemption amount is tied to the filing status of the taxpayer. A single taxpayer, or a married taxpayer filing a separate return, will be entitled to a personal exemption amount of $1,500. Married couples filing jointly and taxpayers filing as Head of Family will have a personal exemption amount of $3,000. The personal exemption is deductible from taxable income regardless of whether or not the taxpayer itemizes deductions, and there is no "phase-out" of the exemption under Alabama law for high income taxpayers as there is on the federal return.
Under current law, an Alabama taxpayer can also claim a $300 deduction for each dependent. As a result of a tax reform measure enacted by the 2006 Regular Session of the Alabama Legislature, the dependent exemption amount will increase significantly for tax years beginning after 12/31/06 for some taxpayers. Beginning with the 2007 tax year, Alabama taxpayers with Adjusted Gross Income (AGI) of $20,000 or less will be able to deduct $1,000 for each dependent other than the spouse. Those with AGI between $20,000 and $100,000 can deduct $500 per dependent, and taxpayers with AGI greater than $100,000 will continue to deduct $300 per dependent. In general, if someone qualifies as a dependent on the federal return, they will also be a dependent on the Alabama return.
Non-Resident Taxpayers
An individual or married couple filing a non-resident Alabama return is required to pro rate their personal exemption amount and their dependent exemption amount based on a fraction. The numerator of the fraction is their AGI from Alabama sources, and the denominator is AGI from everywhere. Assume, for example, a married couple with two children living in Georgia all year that has Alabama source income of $6,000 in 2006, and total income from all sources of $30,000. The personal exemption amount allowed on their Alabama non-resident return is $600, and their Alabama deduction for dependents is $120, as shown in the table below.
Part-Year Residents
Taxpayers who live in Alabama for only a part of the year are entitled to the full personal exemption amount and the full dependent exemption amount on their Alabama return. If the part-year resident has Alabama source income during the non-resident portion of the year, he must file an Alabama Non-Resident Return (Form 40NR) for that period in addition to a part-year resident return. He will claim the full personal exemption amount and dependent exemption amount on the part-year resident return, and he will claim no personal exemption or dependent exemption on his non-resident return.