HB389 Alabama 2025 Session

Updated Feb 23, 2026

Notable

Summary

Primary Sponsor: Danny GarrettRepresentative
Republican
Session: 2025 Regular Session
Title: Income tax, optional standard deduction increased, adjusted gross income range allowed for maximum dependent exemption increased
Summary: HB389 would raise Alabama's optional standard deduction and broaden the income thresholds for the maximum deduction and dependent exemptions, reducing the amount of state income tax owed for many residents.
What This Bill Does
The bill amends Alabama tax law to increase the optional standard deduction and expand the adjusted gross income (AGI) range eligible for the maximum deduction and for dependent exemptions. It introduces a detailed, tiered standard deduction schedule based on filing status and AGI, with increases over time and a new effective date of October 1, 2025. It also redefines how exemptions are calculated for residents and nonresidents, and preserves various retirement and other specific tax exemptions and deductions, including certain retirement income exemptions for seniors and certain public safety retirees, as well as exemptions for special accounts like 529 and ABLE plans. The Department of Revenue would implement rules to carry out these changes.

Who It Affects
All Alabama resident taxpayers and nonresident taxpayers with Alabama-source income, since deductions and exemptions would reduce taxable income for many filers.
Filers by status (single, married filing jointly, married filing separately, head of household), because the standard deduction amounts and dependent exemptions are determined by filing status and AGI under new schedules.
Older taxpayers and retirees, who may receive expanded retirement income exemptions (e.g., up to $8,000 for certain retirees and additional exemptions for older individuals), reducing their Alabama tax burden.
Specific groups with targeted exemptions or deductions (firefighters, police, ABLE/529 account holders, energy improvement buyers, and those with certain dependents), who may gain additional deductions or exemptions.
Nonresidents, for whom deductions and exemptions are prorated based on Alabama-source income.
Taxpayers with dependents, due to enhanced or restructured dependent exemptions that vary by AGI.

Key Provisions
Increase the optional standard deduction and expand the AGI range eligible for the maximum optional standard deduction and for the dependent exemption, effectively raising the income level at which Alabama taxes individuals.
Create a tiered standard deduction schedule linked to filing status and AGI, with minimums and maximums that adjust over time (including changes for years after 2021 and after 2025), and a mechanism for electing either the standard deduction or itemized deductions.
Proportional or limited deductions for nonresidents based on Alabama-sourced income, with several deductions restricted to amounts tied to Alabama activities or property.
Retirement income exemptions for residents and certain retirees (e.g., up to $8,000 for eligible firefighters and peace officers; ongoing exemptions for other retirement income and for seniors aged 65+ starting 2023), with specifics on who qualifies and how much is exempted.
Exemptions for specific accounts (PACT/ACES 529 plans and ABLE accounts) and for certain education-related and housing allowances, along with related conditions and timelines.
Rules enabling the Department of Revenue to implement and administer the new provisions through regulations.
Effective date: October 1, 2025.

AI-generated summary using openai/gpt-5-nano on Feb 22, 2026. May contain errors — refer to the official bill text for accuracy.
Subjects: Taxation & Revenue