AL only allows a credit based on the taxable income to both states. Each state has different rules for calculating income. Usually taxable income is used as a good starting point. Notice for A1, it is not the other states income or taxable income used. It is the AL version of the income.
We don't know of any issues with the AL credits form. All states have the same credit method. You get credit for the lower state tax on the lowest taxable amount.
- Each state calculates taxable income differently.
- Each state has its own tax rate/ system.
- You get the lowest of both categories as a tax credit.
See page 22 of the AL instructions for an example.
Here are the AL rules from page 1 instructions for sch OC:
Part A – Credit for Taxes Paid to Other States (Form 40 Only)
This credit is provided to prevent the double taxation of income and is only available to legal residents of Alabama filing Form 40 who have income from sources outside of Alabama that is being taxed by Alabama and another state (or territory of the United States) in the same tax year. Residents of Alabama for only a part of the tax year can claim this credit only if the returns filed with Alabama and the other state cover the same periods. In order to claim this credit, you must complete the Schedule CR, this section and attach a copy of other state’s return or W-2G’s if the taxing state does not allow a return to be filed for gambling winnings. (For more instruction see Form 40 Tax Booklet)
NOTE: Residents that worked and received income/wages from a state that doesn’t have income tax will not be eligible for the credit for taxes paid to another state.
A1. Sum of Alabama Adjusted Gross Income Attributable to all other States
from Schedule CR, line 26.
A2. Alabama Adjusted Gross Income from Form 40, page 1, line 10.
A3. Total Other States' % of Alabama AGI (Divide line A1 by line A2).
A4. Multiply the current tax liability (Section A) by line A3.
A5. Enter line 27 from Schedule CR.
A6. Credit Allowable (Enter smaller of lines A4 or A5). Enter here and on Section C, Part A, Column 3.
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