State guide · Alabama · 2026 rules

S corporation in Alabama: what the election changes

Alabama adds little at the state level. The election moves your pay onto payroll, where unemployment tax and, in Birmingham, a 1% city tax apply.

Updated October 24, 202612 official sources

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You’ll need: last year’s Schedule C (line 31) and the W-2 from any job you also hold. Everything else starts at a typical value you can change.

State where the business is Each state treats the election differently. The check shows only the questions that matter there.

Net profit for the year, before paying yourself Your business's profit after expenses. Money you take out for yourself does not lower it.

Where do I find this?

Schedule C, line 31 (“Net profit or (loss)”) on last year’s return.

For this year: sales minus business expenses so far, scaled to a full year. Owner draws are not an expense.

Salary you would pay yourself as an S corporation What you would pay yourself through payroll. The IRS expects a reasonable salary for the work you do.

Where do I find this?

No form shows this yet: you choose it. It should be about what you would pay someone else to do your work.

The salary finder just below shows what employees in your job earn in your state or metro area. What the IRS looks at.

Salary finder: what people in your job earn (BLS)

Your job Pick the job closest to what you do most of the week.

Area Pick your metro area if it is listed. Pay varies by area.

Another job I also earn W-2 wages from a job outside this business

Typical values: change them if you know yours

Payroll service, per year typical value Published one-person prices: $492 to $684 a year (October 2026).

Where do I find this?

Your payroll provider’s price page or quote, for one employee: you. Published prices compared.

Extra tax-prep cost for the S-corp return typical value A survey average: the fee for Form 1120-S minus the fee for Schedule C (2020 fees).

Where do I find this?

Ask your preparer what a Form 1120-S (the S corporation’s own return) would cost, then subtract what you pay now for Schedule C.

Your top federal income tax rate Not sure? Keep 22%. It changes line 5 only.

Where do I find this?

Your taxable income is on Form 1040, line 15. Find the rate for that income and your filing status in the IRS rates and brackets table.

Filing status Changes the result only above $200,000 of earnings ($250,000 if married filing jointly, $125,000 if married filing separately).

Where do I find this?

The box checked under Filing Status at the top of your Form 1040.

Choose a state and enter your profit and salary to see the comparison.

The state

Alabama follows the federal S election with no state form. The S corporation files Form 20S and owes no Alabama corporate income tax.

The business privilege tax applies to a single-member LLC and an S corporation alike, on Form PPT, which is also the annual report. The rate runs from $0.25 to $1.75 per $1,000 of Alabama net worth, set by the business’s income. After the election that income is the profit after your salary. A tax of $100 or less is not due, and no return is required.

A sole proprietorship with no LLC owes no business privilege tax. Forming an LLC or corporation to elect brings the Form PPT filing.

Unemployment tax on your salary

Unemployment insurance: 2.70% for a new employer on the first $8,000 of each worker’s wages in a year. Owner-officers of an S corporation or LLC must report their wages.

Birmingham

Birmingham taxes the pay of people who work in the city as employees at 1%. A sole proprietor’s profit is outside it; the owner pays the city business license instead.

After the election the S corporation withholds 1% from your salary for work in Birmingham. The calculator does not include occupational taxes in other Alabama cities or counties.

The optional pass-through entity tax

A one-owner S corporation can elect Alabama’s 5% pass-through entity tax by checking a box on its timely filed Form 20S. The owner gets a refundable credit for the tax the S corporation pays. The calculator leaves it out.

Worked examples

A single-member LLC owner, single filer, 22% federal bracket, default payroll and return costs. The figure is total tax and added costs as an S corporation compared with staying as you are.

Profit / salary	No local tax	Birmingham (1%)
$80,000 / $45,000	$757 lower	$307 lower
$120,000 / $60,000	$3,158 lower	$2,558 lower
$200,000 / $90,000	$7,939 lower	$7,039 lower

Starting payroll in Alabama

Register for state withholding with the Alabama Department of Revenue through My Alabama Taxes, and for unemployment insurance with the Alabama Department of Workforce once you have paid wages for work in Alabama.

New hire paperwork for Alabama

Other states

All state guides and the map

Sources

Federal figures: IRS Publication 15 (2026), Schedule SE and Form 2553 instructions. Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.

An estimate from public rules, not tax advice.

Ready to elect? See the Form 2553 steps.

Electing S corp status