An amount up to $25,000 shall be exempt from Alabama state income tax if received as severance, unemployment compensation, or termination pay, or as income from a supplemental income plan, or both, by an employee who, as a result of administrative downsizing, is terminated, laid-off, fired, or displaced from his or her employment. If the exempt severance pay is included in your state wages, contact your employer for a corrected W-2.
If your employer will not give you a corrected W-2, an adjustment will need to be made to other income on your Alabama income tax return. To make this adjustment:
- From within your TaxACT return (Online or Desktop), click on the State Q&A tab and then click Alabama directly below the blue tabs
- Click Income to expand the category and then click Other Income
- Enter "Exempt Severance Wages" in the description field and enter the amount of severance wages received as a negative number (up to -$25,000) in the amount field. Example: Exempt Severance Wages -10000