Yes, and no. Please let us explain that answer further for you.
For federal income tax purposes, your Alabama pension is considered taxable income. Social Security benefits (including regular retirement and disability) are also considered taxable as well, but with some exclusions, such that the majority of retirees don't actually pay any tax on their Social Security.
According to the IRS, to find out whether any of your Social Security benefits may be taxable, compare the base amount for your filing status with the total of:
- One-half of your benefits; plus
- All of your other income, including tax-exempt interest.
The base amount for your filing status is:
- $25,000 if you're single, head of household, or qualifying widow(er),
- $25,000 if you're married filing separately and lived apart from your spouse for the entire year,
- $32,000 if you're married filing jointly,
- $0 if you're married filing separately and lived with your spouse at any time during the tax year.
If you're married and file a joint return, you and your spouse must
combine your incomes and social security benefits when figuring the
taxable portion of your benefits. Even if your spouse didn't receive any
benefits, you must add your spouse's income to yours when figuring on a
joint return if any of your benefits are taxable. If your total exceeds the base amount, then some of your Social Security (up to a maximum of 85% of it) is taxable.
There are various tables and worksheets in the IRS Form 1040 instructions, as well as in TurboTax, that will figure these Social Security calculations for you.
With respect to Alabama state taxes, the picture changes significantly. Alabama does not levy a state income tax on either Social Security, or on Alabama government pensions, at all. A full list of tax exclusions can be found at the following Alabama Department of Revenue website:
https://revenue.alabama.gov/incometax/xempt.cfmThank you for asking this important question.
