Lawmakers bring tax cut proposals for low-income, retired Alabamians

Lawmakers bring tax cut proposals for low-income, retired Alabamians

By MARY SELL, Alabama Daily News

Two north Alabama lawmakers now have draft legislation offering tax cuts to low-income Alabamians and some retirees.

“As a result of the large amount of federal COVID-relief dollars being injected into Alabama and the conservative budgeting approach the legislature has taken over the years, we find ourselves in a prime position to be able to deliver tax cuts to the people back home in our districts – particularly retirees and low-income individuals,” Sen. Arthur Orr said in a statement Thursday.

Orr and Rep. Lynn Greer, R-Rogersville, have been working on the proposals for several months. They say record state revenues make it the right time to offer people tax breaks.

Senate Bill 18 would allow up to $10,000 from defined contribution deferred compensation plans, such as 401Ks, to be exempt from income tax for individuals 65 and older. This exemption will be phased in over a two-year period.

Currently in Alabama, retirement incomes from 401(k)s and other defined contribution plans are subject to state income tax, paying between 2 and 5%. But Alabamians who have defined benefit plans — including pensions from the state or federal government and the Tennessee Valley Authority — are not taxed on their retirement income. 

Rep. Lynn Greer, R-Rogersville, for years has been trying to untax defined contribution plans.

“All our contiguous states offer a better deal than Alabama to retirees when it comes to defined contribution plan taxation,” Greer said in a written statement. “It is important that we take advantage of the strong budgetary position our state currently finds itself in and use it to do something that will greatly benefit thousands of Alabamians across our state.”

Senate Bill 19 would increase the optional standard deduction by the following amounts by $1,000 for couples married filing jointly and $500 for those single, married filing separately and head of household.

The bill also increases the adjusted gross income range allowable for the maximum optional standard deduction to $35,000, up from $33,000, and the adjusted gross income range allowable for dependent exemption to $50,000, up from $20,000, to increase the threshold at which the state imposes individual income taxes.

Orr told Alabama Daily News that together, the tax breaks would cost the state about $57 million per year when fully implemented.

“The fact is that there are many Alabamians who could greatly benefit from these tax breaks, and we are in a position as a state where we can supply them. I appreciate the broad support that I have already received from my colleagues on this legislation, and I look forward to taking up these bills in the legislative session.”

The draft bills will start in the Senate and have 14 co-sponsors.

The legislative session starts Jan. 11.