Luckily, the Yellowhammer State doesn’t tax your unemployment benefits. In fact, the unemployment benefits you get due to the CARES Act and its extensions are all exempt from any U.S. state, county, as well as municipal income tax for both 2020 and 2021 tax years.
Additionally, the first $50,000 you get from an employer received as severance pay are not taxed either. When it comes to Alabama’s income tax ranges, the lowest rate is 2 percent on $500 of taxable income for single filers and $1,000 for married joint filers.
The highest rate is 5 percent, applied on more than $6,000 of taxable income for those who are married and file jointly and more than $3,000 for other filers.