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There is a page that says "Federal Income Not Tax By Alabama" where you can enter the severance payment as a negative number.
I found the page and entered the exempt income however, the screen indicates that what is entered does not change int refund/payment amount. This exemption should lower my taxable income. I still need assistance with reflecting this in my return.
So that page says "if you reported income on your federal return that is not taxed by Alabama and not reported elsewhere on your Alabama return, enter it here. This is for informational purposes only."
Was there ever an answer as to how to input severance pay in Alabama to get the tax credit on the first $25,000 as per Al Code 40-18-19.1? I have the same questions as asked before but don't see an answer. Thanks.
It depends. Alabama income tax must not be withheld when exempt severance payments are made. Also, the amount of the exempt severance payments should not be included in Alabama taxable wages (box 16) of the employee W-2 form, but should be disclosed in box 14 (Other) of the W-2 as exempt severance payments.
If your W-2 has severance payments in the wrong box, you will need to contact your employer to obtain a correction. There is no way to tell TurboTax to overlook what is in the boxes of your W-2. The employer would have been required to apply for approval to exempt the severance payments.
Here is a link to the Alabama Department of Revenue with more information.
TIP: If the W-2 has no entry for Box 16 - State Wages and there IS an amount in Box 18 - Local Wages, TurboTax will incorrectly treat the local wage amount as "Additional Taxable Wages - Other States" on Alabama Schedule 2, Column J.
The workaround I found that prevents this is to add the following entries to the W2 in Federal:
Box 15 - State: AL
Box 15 Employer State ID - Get it from the prior year's W2
Box 16: .01 (one penny)
This works because the presence of a value other than zero stops TurboTax from incorrectly reporting the local wages as "Additional Taxable Wages - Other States". I used a penny because that rounds down to zero dollars and TurboTax retains the .01 entry. Otherwise, if zero is entered, we observed that TurboTax Online will clear that zero it out while TurboTax Desktop will retain the zero that was entered.
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