SB579 Alabama 2010 Session

Summary

Primary Sponsor

Scott Beason

Republican

Session

Regular Session 2010

Title

State income tax, certain retirement allowances, pensions, and annuities exempt under federal law, exempt from state income tax, Sec. 40-18-19 am'd.

Summary

SB579 would broaden Alabama's tax exemptions by excluding many retirement income types and certain education savings from state income tax, aligning with federal rules and expanding exemptions for specific public safety pensions.

What This Bill Does

Amends the state income tax law to exempt from Alabama tax retirement allowances, pensions, and annuities for teachers and state employees, where the exemption level follows existing federal-back exemptions. adds partial then full exemptions for firefighters and police retirees (initially up to $8,000 per person, with full exemption for pension payments beginning in 1991). extends exemptions to federal government retirement benefits (such as Civil Service and TVA annuities) and to certain defined benefit plan payments to the extent they would be taxable federally. creates additional exemptions for certain net income from select financial services businesses, and clarifies personal and dependent exemptions as well as nonresident allocation rules; it also permanently exempts qualified education savings (529/ACES) when funds are used for eligible higher education.

Who It Affects

• Resident taxpayers with retirement income from state system pensions (Teachers' Retirement System and Employees' Retirement System) would receive exemptions matching federal status.
• Eligible firefighters and their beneficiaries would get an initial $8,000 exemption on retirement pay, with full exemption of pension payments starting in 1991.
• Eligible peace officers (police retirees) and their beneficiaries would get an initial $8,000 exemption, with full pension exemption starting in 1991.
• Recipients of U.S. federal retirement benefits (e.g., Civil Service, TVA, Foreign Service) would have those annuities exempt from Alabama tax.
• Parties with certain defined benefit plan payments would receive state tax exemption if those payments would be taxable under federal law.
• Owners of financial service businesses subject to Alabama's excise tax on such income could see their net income exempt from state income tax.
• Taxpayers who claim personal and dependent exemptions would have the exemptions adjusted and allocated per household rules, including nonresident rules.
• Savers using 529/ACES accounts would have income from those accounts exempt if funds stay in trust or are used for qualified higher education expenses.
• Nonresident taxpayers would receive proportional personal exemptions based on the share of Alabama-source income.

Key Provisions

• Amends Section 40-18-19 to exempt retirement allowances, pensions, and annuities for TRS/ERS and other qualifying programs as specified.
• Implements an $8,000 exemption for the first portion of retirement compensation for eligible firefighters and police; stipulates full exemption of pension payments for 1991 and later years.
• Exempts annuities from U.S. government retirement systems (Civil Service, TVA, Foreign Service, etc.).
• Provides that starting 1991, defined benefit plan payments are exempt to the extent they would be taxable federally.
• Allows exemptions for net income from certain financial services businesses taxed by Alabama only if those businesses are subject to the state's excise tax.
• Details personal and dependent exemptions, including rules for married couples and dependents.
• Provides exemption for qualified higher education savings under Title 16, 33C (PACT/ACES) when funds remain in trust or are used for qualified expenses.
• Establishes that beginning 2011, retirement allowances exempt from state tax if they are exempt from federal taxation under 26 U.S.C. §403(b).
• Nonresident exemptions are allocated based on the ratio of Alabama-source income to total income.

AI-generated summary using openai/gpt-5-nano on Feb 25, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation