Updated October 5, 2026. Quick answer: Yes, unless the payments come from a listed system, and a taxpayer 65 or older excludes up to $6,000 a year. Alabama’s 2025 booklet lists “Pensions and annuities other than those listed” among the income you report, and the Department of Revenue exempts “Payments from a Defined Benefit Retirement Plan in accordance with IRC 414(j)”. For a taxpayer 65 or older, the 2025 Schedule RS adds that “each taxpayer is eligible up to $6,000 not to exceed the Retirement Income Taxable to Alabama”.
State retirement-income forms, line by line: Alabama Schedule RS.
How Alabama treats annuity income
| Item | What the documents say |
|---|---|
| Treatment | Taxed as income unless the payments come from a listed system or plan; up to $6,000 of taxable retirement income excluded for each taxpayer 65 or older |
| Rates | 2% on the first $500, 4% on the next $2,500 and 5% on income over $3,000 (single, head of family, married filing separately); 2% on the first $1,000, 4% on the next $5,000 and 5% over $6,000 (married filing jointly) |
| Exempt | “Payments from a Defined Benefit Retirement Plan in accordance with IRC 414(j)”, plus the other systems the Department lists |
| Age 65 exclusion | Schedule RS asks “Is the primary taxpayer 65 or older and receives taxable retirement?” and, if yes, “each taxpayer is eligible up to $6,000 not to exceed the Retirement Income Taxable to Alabama” |
| Where it is reported | “Use Schedule RS to report pension and annuity” |
A $24,000 example
A single filer under 65 whose other taxable income already tops $3,000 pays 5% on the whole of $24,000 in taxable annuity payments, computed as $24,000 x 5% = $1,200.
At 65 or older the same filer excludes $6,000 on Schedule RS, so the tax is computed as ($24,000 minus $6,000) x 5% = $900.
If the same $24,000 is a payment from a defined benefit plan the Department lists as exempt, none of it is reported and it adds $0 of Alabama tax.
What changes in 2026
The latest documents read print no 2026 change to the way annuity income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Topic no. 410, Pensions and Annuities and Publication 575, Pension and Annuity Income.
Related: whether Alabama taxes pensions, how Alabama taxes retirement income, state tax on 401(k) and IRA withdrawals, how a surrendered annuity is taxed, and pension and annuity decisions.
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Answer againSources
- 2025 Form 40 Booklet, Residents and Part-Year Residents (Alabama Department of Revenue): https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf
- 2025 Form 40 and schedules, including Schedule RS (Alabama Department of Revenue): https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40.pdf
- Individual Income Tax: General Information for Individuals (Alabama Department of Revenue): https://www.revenue.alabama.gov/individual-corporate/individual-income-tax-filing-information/
- Income Exempt from Alabama Income Taxation (Alabama Department of Revenue): https://www.revenue.alabama.gov/individual-corporate/income-exempt-from-alabama-income-taxation/
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.