Alabama tax rates drop to 25 year low

The state’s tax rates have dropped 54% for employers, but the bigger picture reveals more than meets the eye.
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Published: Feb. 1, 2023 at 5:42 PM CST
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DOTHAN, Ala. (WTVY) -Alabama employers are saving money this tax season, and it could create a wave of good tidings for employees.

The state’s tax rates have dropped 54% for employers, but the bigger picture reveals more than meets the eye. “It sounds like a lot,” Wiregrass tax expert, Thomas Parish, said, “but really and truly it’s not a huge tax to begin with, it does fluctuate a good bit.”

The tax Parish referred to is on that employer’s pay-per-employee. The tax money goes directly into a trust fund that shells out money to those who file for unemployment in the state. “So that trust fund is set up to keep enough funds in it to be able to pay unemployment for the coming year,” Parish said.

Alabama’s unemployment rate was 3.1% in December 2021 and dropped to 2.8% in December 2022. The fluctuation is based on how many people file for unemployment, and according to Parish, “the higher the unemployment rates, of course, the more there is a draw on that trust.”

The steady drop now means Alabama businesses pay in less to the state. Parish said, “because it is a lower tax rate, it’ll allow employers to hire more people or potentially pay their employees a little more. You have to pay employees more, because it’s harder to find them, so it’s just really hard to find employees right now, so any little bit helps.”

All of this leads to higher wages for employees and smaller taxes for employers in 2023. Looking ahead to next year, Parish said the best predictions come from looking at past patterns and in his expertise, “it always goes back up, it always seems to go back up.”

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