Alabama Form 40 Schedule B – Interest and Dividend Income (2026)
Last reviewed: 2025-11-11
Use the Alabama Tax Form Calculator Alabama Form 40 Schedule B – Interest and Dividend Income as a stand alone tax form calculator to quickly calculate specific amounts for your 2026 Alabama state tax return. Alternatively, you can use one of our Combined Federal and State Tax Estimators to quickly calculate your salary, tax, and take-home pay.
Schedule B of the Alabama Form 40 is used to report interest and dividend income earned during the tax year. Alabama residents must list all interest and dividends received from U.S. corporations, savings accounts, bonds, and other investments. Certain types of interest income — such as interest from U.S. Treasury obligations or Alabama municipal bonds — are exempt from Alabama income tax, while interest from other states or foreign sources is taxable.
This schedule helps ensure all taxable income is included on your Alabama Individual Income Tax Return (Form 40) and that exempt sources are properly deducted.
How to Complete Alabama Schedule B
List all types of interest and dividends separately on Lines 1 through 9. Then:
- Enter exempt interest such as U.S. Treasury bills or Alabama municipal bonds on Lines 1–2.
- Include taxable interest from out-of-state bonds, savings, or investment accounts on Lines 3–4.
- Report dividends received from U.S. and foreign corporations on Lines 5–6, and note any capital gain distributions on Line 8.
- Total all entries on Line 10, subtract exempt interest on Line 11, and record the taxable total on Line 12.
The result on Line 12 transfers to Form 40, Line 5 as part of your taxable income.
| 1 | Interest on U.S. obligations (non-taxable) | |
| 2 | Interest on Alabama municipal obligations (non-taxable) | |
| 3 | Interest from other state/municipal bonds | |
| 4 | Interest from savings and bank deposits | |
| 5 | Dividends from U.S. corporations | |
| 6 | Dividends from foreign corporations | |
| 7 | Other dividends (specify) | |
| 8 | Capital gain distributions | |
| 9 | Other interest (describe) | |
| 10 | Total interest and dividend income (add Lines 1–9) | |
| 11 | Exempt interest (e.g., qualifying municipal obligations) | |
| 12 | Taxable interest and dividend income (Line 10 − Line 11) |
Examples and Scenarios
Example 1 – Tax-Exempt Interest: Emily earned $1,200 from U.S. Treasury bonds and $300 from Alabama municipal bonds. Both are exempt, so she reports them on Lines 1 and 2 but they are excluded from taxable income.
Example 2 – Mixed Income: Jordan received $450 interest from an out-of-state bond and $2,000 dividends from U.S. corporations. The bond interest (Line 3) and dividends (Line 5) total $2,450, all of which is taxable since only Alabama or federal direct obligations are exempt.
Example 3 – Foreign Dividend: A taxpayer with $500 dividends from an international mutual fund reports that amount on Line 6, fully taxable under Alabama law.
Last reviewed: 2025-11-11: If you believe this form requires an update, please contact us.
Additional Resources
- Form 40 – Alabama Individual Income Tax Return
- Form 40 Schedule A – Itemized Deductions
- Alabama Department of Revenue – Individual Income Tax
Always retain statements from banks, brokers, or mutual funds detailing interest and dividend payments. The Alabama Department of Revenue may request verification during audits to confirm that exempt income was properly identified.
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Frequently Asked Questions
What happens if Form AL-40X shows that I owe additional Alabama tax?
If your amended return results in a higher tax liability, you should pay the additional amount when you file AL-40X. Interest on underpaid tax generally accrues from the original due date of the return, not the date you amend, so delaying payment only increases the final cost. If you are mailing a check, Alabama recommends using a payment voucher such as Form AL-40V or AL-40NRV, depending on whether you are a resident or nonresident, so that your payment is correctly tied to the amended year and account. Failure to settle the extra liability can lead to billing notices, further interest, and potential collection actions. Even so, voluntarily amending and paying usually results in a better outcome than waiting for Alabama or the IRS to discover discrepancies.
What records should parents keep to support a Schedule AATC claim?
Parents should retain invoices, tuition bills, proof of payment (bank statements, receipts), enrollment confirmations, and school documentation proving entry into the non-failing or nonpublic school. The Alabama Accountability Act requires strict substantiation to prevent misuse, so taxpayers should also keep the school’s classification documents or confirmation that the original school appeared on the “failing school” list for the appropriate year. If audited, the Alabama Department of Revenue may request these records to validate the refundable credit. While documents are not mailed with the return, they should be kept for at least three years.
How can I estimate my Alabama tax before using Form 40A?
You can preview your expected liability with the Alabama State Tax Calculator. It uses current rates, thresholds, and personal exemptions to show how much tax you’ll owe or be refunded. This is especially useful if you are switching from the full Form 40 or adjusting withholding.
Who must file Alabama Form AL-40NR and how does it differ from the resident Form AL-40?
Form AL-40NR is required for individuals who were not Alabama residents for the tax year, or who lived in the state only part-time, but earned income from Alabama sources. Unlike the resident Form AL-40, which reports all income from all sources, Form AL-40NR focuses on allocating income between Alabama and other jurisdictions. You must complete the return if you earned wages for work performed in Alabama, had rental property within the state, received income through a pass-through entity operating in Alabama, or sold property located in Alabama. Part-year residents must report income earned while domiciled in the state and any income sourced to Alabama thereafter. The AL-40NR also requires an allocation schedule to separate Alabama-sourced income from non-Alabama income, ensuring the correct proportion of tax is calculated. This prevents nonresidents from overpaying on non-Alabama income while still ensuring Alabama collects the correct amount on in-state activity.
Why don’t my brackets match payroll tables?
Employers may use different rounding/timing tables; small variances are normal.
Important Notes
All calculations are estimates for guidance only. Always review your return and consider professional advice when submitting official filings.