What to Know About the Alabama Surplus Tax Refund

In late 2023, Alabama issued a one-time tax rebate to residents following a budget surplus. Lawmakers approved returning a portion of the state’s $2.8 billion Education Trust Fund surplus to taxpayers. This payment was intended to provide financial relief and help offset what residents paid in grocery taxes. The Alabama Department of Revenue was tasked with distributing these funds automatically to all who qualified.

Eligibility for the Refund

To receive the surplus tax refund, an individual must have filed an Alabama individual income tax return for the 2021 tax year. The Alabama Department of Revenue (ALDOR) specified that this 2021 return must have been received by the state on or before the deadline of October 17, 2022, including any extensions. The basis for qualification was this timely filing, and no additional action was needed from taxpayers to claim the rebate, as ALDOR automatically identified eligible individuals.

Certain individuals and entities were explicitly excluded from receiving this one-time payment. Trusts and estates were not eligible for the refund. Furthermore, any individual who was claimed as a dependent on another person’s 2021 tax return did not qualify for their own separate payment. The refund was also limited to residents, so non-residents who may have filed an Alabama tax return for other reasons were not eligible to receive the funds.

Refund Amounts and Taxability

The amount of the rebate was determined by the filing status on the qualifying 2021 state income tax return. Individuals who filed as single, head of family, or married filing separately received a payment of $150. For those who filed as married filing jointly, the rebate amount was $300.

A significant aspect of this rebate is its tax treatment at both the state and federal levels. The Alabama Department of Revenue clearly stated that the refund is not subject to Alabama state income tax. This means recipients did not have to report the payment as income on their subsequent state tax returns.

On the federal level, the Internal Revenue Service (IRS) has provided guidance on similar state-level payments, often referred to as special tax refunds or general welfare payments. Generally, these types of state payments are not included in an individual’s federal gross income. This means that for most recipients, the Alabama surplus tax refund did not need to be reported as taxable income on their federal tax return.

Receiving Your Payment

The Alabama Department of Revenue began issuing the tax rebates on November 30, 2023. The method of payment was determined by how a taxpayer received their 2021 tax refund. If an individual received their 2021 refund via direct deposit, the state used the same bank account information to issue the rebate electronically.

For all other qualifying individuals, a paper check was mailed to the address on file from their 2021 tax return. This included those who received their 2021 refund by check, did not receive a refund for that tax year, or whose banking information had changed. Paper checks were also issued if the 2021 refund was deposited into an account belonging to a tax preparer.

Individuals who believe they met all eligibility criteria but did not receive their payment were advised to check the status online. The Alabama Department of Revenue maintains a “Where’s My Refund” portal on its website, which can be used to inquire about the status of payments. For further assistance, taxpayers could contact the department directly by phone at 334-242-1170 and selecting option 1.