---
title: Alabama – Severance Pay Exempt from State Income Tax
description: An amount up to $50,000 per tax year shall be exempt from Alabama state income tax if received as severance, unemployment compensation, or termination pay, or as income from a supplemental income plan, or both, by an employee who, as…
url: "https://support.taxact.com/support/1608/alabama-severance-pay-exempt-from-state-income-tax"
updated: "2026-10-06"
category: Individuals / State Taxes
tags:
  - alabama,
  - exempt
  - from
  - income
  - pay
  - severance
  - state
  - tax
---

# Alabama – Severance Pay Exempt from State Income Tax

An amount up to $50,000 per tax year shall be exempt from Alabama state income tax if received as severance, unemployment compensation, or termination pay, or as income from a supplemental income plan, or both, by an employee who, as a result of administrative downsizing, is terminated, laid off, fired, or displaced from his or her employment. If the exempt severance pay is included in your state wages, contact your employer for a corrected W-2.

If your employer will not give you a corrected W-2, an adjustment will need to be made to other income on your Alabama income tax return. To make this adjustment:

### TaxAct Online

1. From within the TaxAct return, navigate to the State tab from the side menu.
2. Click **Edit/Start** next to the Alabama return.
3. On the screen titled ***Alabama - Other Income***, select **Yes**.
4. Enter "Exempt Severance Wages" in the description field and enter the amount of severance wages received as a negative number (up to -$50,000) in the amount field.

### Desktop

1. From within the TaxAct return, navigate to the Q&A tab via the menu bar at the top of the program.
2. Navigate to the **State** tab and click **Continue**.
3. Click **Yes** to start the State Q&A process.
4. On the screen titled ***Alabama - Other Income***, select **Yes**.
5. Enter "Exempt Severance Wages" in the description field and enter the amount of severance wages received as a negative number (up to -$50,000) in the amount field.