Four bills aimed at cutting taxes for Alabamians have officially been filed in the Alabama House of Representatives after weeks of speculation from legislative leadership and the Alabama Republican Party (ALGOP).
Hopes of additional tax cuts seemed dim when legislative leadership gave little hope of continuing the state's overtime tax after an Alabama Department of Revenue report said the fiscal effect could be as much as $230 million.
However, after working with legislative leadership, ALGOP Chairman John Wahl touted multiple tax-cutting measures earlier this week.
"The Alabama Republican Party stands for lower taxes and fiscal responsibility, and we will continue to fight for hardworking Alabamians to have lower taxes," Wahl said. "In these challenging times of rising inflation and increased costs, it's critical that we take bold action to ensure Alabamians—especially families and retirees—receive the relief they need. Donald Trump is leading the line in Washington, and I want to see Alabama doing our part to provide citizens with needed tax relief right here at home."
Education Trust Fund (ETF) budget chairman State Rep. Danny Garrett (R-Trussville) sponsors the four-bill package.
"While I am proud that Alabama's taxes are consistently among the lowest in the nation, there are still commonsense, conservative measures we can take to put more money back into the pockets of hardworking Alabamians," Garrett said. "These bills will lower grocery bills, reduce taxes on withdrawals from defined contribution retirement plans, and increase the standard deduction on state income taxes. Additionally, we will remove the restriction from the Grocery Tax Cut that prevents counties and municipalities from reducing their local grocery taxes."
First up is House Bill 386 (HB386), which increases the state's grocery tax cut by an additional 1%, bringing the total reduction to 2% since 2023. Lawmakers reduced the 4% sales tax rate on groceries by 1% in September 2023. However, an expected additional cut did not come the following year.
The fiscal note on HB386 estimates a $121.6 million to the ETF and a $281,750 reduction to the state's General Fund, bringing the total estimated loss to $121.9 million.
"Including the previous cut in the grocery tax, these tax cuts will save Alabama families approximately $314.6 million per year," Garrett added.
Related to the grocery tax, House Bill 387 (HB387) would revise the law preventing local governments from lowering their own grocery tax.
The definition of "food" for state sales and use taxes applies to county and municipal taxes. Municipal and county governments may reduce their sales and use tax rate on food by 25% in any year they meet certain growth requirements.
HB387 would remove the 25% growth requirement, allowing local governments discretion to cut grocery taxes.
"The Legislature has passed over a dozen tax cuts since 2022, saving Alabama families thousands of dollars each year," said House Speaker Nathaniel Ledbetter (R-Rainsville). "We've done this while paying off the state's debt, fully funding reserve accounts, issuing $393 million in tax rebates, and cutting government waste. Alabama's financial footing has never been stronger, and I'm proud that our responsible budgeting has allowed us to provide even more relief to our citizens."
House Bill 388 (HB388) would double the state's tax exemption for defined certain retirement plan withdrawals.
Under current law, the first $6,000 of taxable retirement income for individuals who are 65 or older is exempt from Alabama income taxes. This bill would increase the exemption amount to $12,000. The bill's fiscal note estimates a $44.8 million decrease in income tax receipts to ETF.
House Bill 389 (HB389) would increase the optional standard income tax deductions range.
Currently, taxpayers are allowed an optional standard deduction, as well as dependent exemptions in computing income subject to the tax. This bill would increase the optional standard deduction and expand the adjusted gross income range allowable for the maximum optional standard deduction. It would also cause the dependent exemption to raise the threshold at which the state imposes individual income taxes.
A full list of the adjusted deduction adjustments can be found here, but the bill's fiscal note claims the ETF would take a $23.8 million annual hit after $18.9 million in fiscal year 2026.
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