Wednesday, the Alabama Senate approved legislation to allow individuals age 65 or older to exempt up to $6,000 of taxable retirement income from state income tax.
Presently, certain 401(K) and Individual Retirement Account (IRA) distributions are considered taxable income under state law. Senate Bill 18, sponsored by State Sen. Arthur Orr (R-Decatur), would enable a maximum exemption amount of $6,000 beginning in tax year 2023. The legislation would apply to any retirement income that is currently taxable.
According to Orr, the current national inflation crisis necessitated the legislation due to the decline in the value of retirees’ savings.
“With inflation being as high as it is today, most retirees on fixed pension incomes are seeing a substantial decrease in their purchasing power each month as inflation continues to deplete their earnings,” stated Orr. “This bill would enable the government to send money back to hardworking Alabama taxpayers and provide immediate assistance to help these individuals in their everyday living.”
Orr advised that Alabama’s bordering states allow certain retirement earnings to be exempt from state income taxes. The senator took issue with the White House over the lack of assistance he said it has sought to provide for senior citizens living on fixed income.
Given that the state’s budgets have recently experienced historic revenue, Orr indicated that the state held the means to act on providing “much-needed” tax relief.
“All of Alabama’s neighboring states exempt some amount of 401K and IRA earnings from being taxed by their state government; now is the time for Alabama to do the same,” added Orr. “The Biden Administration has made no effort to provide support to Americans on fixed incomes while inflation is at a 40-year high. Our state budgets are currently in great shape, and this is an opportune time to deliver much-needed relief to retired Alabamians.”
Having been approved by the upper chamber, the bill now heads to the Alabama House of Representatives for debate.
Dylan Smith is a staff writer for Yellowhammer News. You can follow him on Twitter @DylanSmithAL
Don’t miss out! Subscribe today to have Alabama’s leading headlines delivered to your inbox.