There are certain retirement systems that Alabama does not make taxable, including "any defined benefit retirement plan in accordance with IRC 414(j) (contact your retirement plan administrator to determine if your plan qualifies)."
The TaxACT program cannot determine if the plan is eligible to be tax exempt, so the preparer of the return must change the amount if it is not taxable to Alabama.
- From within your TaxACT return (Online or Desktop) click on the State Q&A tab and then click Alabama right below the blue tabs at the top of the screen
- Click Income to expand the category and then click Pension Income
- On the screen titled Alabama - Pension Income, enter your total and taxable pensions
If you have entered taxable pension income, this screen will state the following:
"You have taxable pension income on Line 5b of Form 40 Part I. If any of this amount was received from a retirement system listed in the instructions for Part I Line 5, the amount is NOT taxable and should not be reported. If this is the case, enter a zero on the taxable pensions line."
The screen also lists some examples of exempt retirement systems. Change the taxable amount for Alabama to zero if it is not taxable.