| The Heart of Dixie state is one of many U.S states | | | | that meet the specific requirements of and regulations |
| which impose individual income tax. State withholding | | | | of section 125 of the Internal Revenue Code. It |
| tax is the money an employer is required to withhold | | | | provides participants an opportunity to receive certain |
| from each employee's wages to pay the state income | | | | benefits on a pre-tax basis. |
| tax of the employee. The employer pays no part of | | | | 2. Retirement Savings (code 219) Plans. |
| the tax, but is responsible for collecting and remitting | | | | 3. 401K Plans: Cash or Deferred Arrangement. A |
| the tax withheld. | | | | 401(k) plan allows a worker to save for retirement and |
| In general all wages earned in Alabama are subject to | | | | have the savings invested while deferring income |
| income tax withholding. However, there are certain | | | | taxes on the saved money and earnings until |
| types of employment that are exempt from payroll | | | | withdrawal. |
| withholding such as merchant seaman, agricultural and | | | | 4. 403(b) Plans: Qualified Annuity Plan (Teacher's |
| domestic employees, and duly ordained ministers. Both | | | | Retirement). A 403(b) plan is a retirement plan offered |
| wages earned by a resident or a non-resident while | | | | by public schools and certain tax-exempt organizations. |
| working in Alabama are subject to Alabama | | | | Basically, 403(b) plans are similar to 401(k) plans. Just |
| withholding tax. | | | | as with a 401(k) plan, a 403(b) plan lets employees |
| Wages (for Alabama withholding tax purposes) shall | | | | defer some of their salary. In this case, their deferred |
| include those wages exempt from federal withholding | | | | money goes to a 403(b) plan sponsored by the |
| if the wages represent taxable income under the | | | | employer. This deferred money generally does not get |
| Alabama income tax law and there is no provision | | | | taxed by the federal government or by most state |
| under the Alabama law for a deduction corresponding | | | | governments until distributed. |
| to the allowable federal deduction. | | | | 5. 408(k) Plans: Simplified Employee Pension: A simpler |
| The following federal code sections are recognized by | | | | alternative to a 401(k) plan available only to companies |
| the State of Alabama and should not be included in an | | | | with 25 or fewer employees. |
| employee's wages and are not subject to withholding | | | | 6. 408(p) Simple Plans: Savings Incentive Match Plan |
| tax. | | | | (IRA). |
| 1. Cafeteria Plans: A cafeteria plan is a separate | | | | 7. |
| written plan maintained by an employer for employees | | | | |