Current through Register Vol. 42, No. 11, August 30, 2024
(1) Items which are excluded from gross
income are listed in §
40-18-14(3),
Code of Ala. 1975, as follows:
(a) Amounts received under life insurance
policies and contracts paid by reason of the death of the insured, in
accordance with 26 U.S.C. §
101.
(b) Amounts received, other than amounts paid
by reason of the death of the insured, under life insurance, endowment or
annuity contracts determined in accordance with 26 U.S.C. §
72.
(c) The value of property acquired by gift,
bequest, devise, or descent, in accordance with 26 U.S.C. §
102 - the
income from such property shall be included in gross income.
1. Gross income does not include a fellowship
or grant that is an outright gift with no obligation on the part of the
recipient. Payments to an individual as a scholarship at an educational
institution or as a fellowship grant are excluded from the gross income of the
student to the extent that services are not required of the student in order to
receive the payments. The value of contributed services and accommodations are
also excluded from gross income. If there is a condition that a person must
teach or enter into employment, payments are not gifts.
2. Payments for teaching, research, or other
services in the nature of part-time employment required as a condition to
receiving the scholarship or fellowship grant are not exempt and should be
included in gross income.
3.
Prizes, awards, and scholarships are not specifically addressed by Alabama
income tax law. The Department will look to 26 U.S.C. §
74, Prizes and
Awards, and 26 U.S.C. §
117, Qualified Scholarships, as guidance to
determine whether specific prizes, awards, and scholarships are excluded from
gross income.
(d)
Interest upon obligations of the United States or its possessions; or
securities issued under provisions of the Federal Farm Loan Act of July 18,
1916. Examples of exempt obligations include U.S. Savings Bonds, U.S. Treasury
Notes or Bills, obligations of the Bank for Cooperatives, Federal Land Banks,
Federal Intermediate Credit Banks, Federal Home Loan Banks, Productions Credit
Associations, Federal Financing Bank, and the Tennessee Valley Authority.
Interest received from the United States government earned on other than
investment obligations, such as interest on tax refunds, is subject to Alabama
income tax and should be included in gross income.
(e) Amounts received which are excludable
from gross income under 26 U.S.C. §
104, relating to compensation for
injuries or sickness.
(f) Amounts
received which are excludable from gross income under 26 U.S.C. §
105,
relating to amounts received from accident or health plans.
(g) Interest on obligations of the State of
Alabama and any county, municipality, or other political subdivision thereof.
It should be noted that interest on obligations of other states and political
subdivisions thereof is taxable.
(h) The rental value of a parsonage provided
to a minister of the gospel, to the extent excludable under 26 U.S.C. §
107.
(i) Income from
discharge of indebtedness to the extent allowed by 26 U.S.C. §
108, with
the exception that the reductions in tax attributes required by 26 U.S.C. §
108 shall be applied only to the net operating losses determined under
Alabama income tax law and to the basis of depreciable property. The basis
reductions of depreciable property shall not exceed the basis reductions for
federal income tax purposes. All other tax attribute reductions required by 26 U.S.C. §
108 shall not be recognized.
(j) Gain from the sale of a personal
residence to the extent excludable for federal income tax purposes under 26 U.S.C. §
121.
(k) Contributions
made by an employer on behalf of an employee to a trust which is a part of a
qualified cash or deferred arrangement, as defined in 26 U.S.C. §
401(k)(2) or 5 U.S.C. §
8437, subject to the limitations of 26 U.S.C. §
402(g).
(l) Contributions,
made by an employer for an employee for an annuity contract, which would be
excludable from the gross income of the employee, in accordance with 26 U.S.C. §
403(b), subject to the limitations of 26 U.S.C. §
402(g).
(m) Amounts excludable in accordance with 26 U.S.C. §
125, relating to cafeteria plans.
(n) Amounts excludable in accordance with 26 U.S.C. §
132, relating to certain fringe benefits.
(o) Amounts excludable in accordance with 26 U.S.C. §
129, relating to dependent care expenses.
(2) In addition, items of income which
federal law prohibits the states from taxing, or which are otherwise exempt
from taxation by the Code of Ala. 1975, are excluded
from gross income. For example, the daily subsistence allowance paid to state
law enforcement officers pursuant to §
36-21-2,
Code of Ala. 1975, is excluded from gross income.
Also, federal law exempts from taxation allowances for quarters, subsistence,
uniforms and travel furnished military personnel by the United States
Government.
(3) Other items of
income are exempt:
(a) Income of foreign
missionaries - see §
40-18-2.1,
Code of Ala. 1975.
(b) Certain retirement allowances, net income
realized from a financial business, personal exemptions and dependent
exemptions - see §
40-18-19.
(c) Certain severance payments - see §
40-18-19.1.
(d) Military retirement benefits - see §
40-18-20.
(4) For interpretation of federal
statutes adopted by the Alabama legislature, see Rule 810-3-1.1 -.01, Operating
Rules.
(5) The provisions of the
federal "Taxpayer Relief Act of 1997" which were adopted by Alabama Act 98-502
have the same effective date for Alabama income tax purposes as they do for
federal income tax purposes.
Authors: Ann F. Winborne, CPA, Ed Cutter, CPA,
John Danziger, and Rebecca S. Whisenant
