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
How does income allocation work for part-year residents filing AL-40NR?
For part-year residents, Form AL-40NR requires a two-step process: (1) report all income from all sources on the federal-equivalent side of the return, and (2) allocate only Alabama-sourced income into the Alabama column. Income earned while you were physically residing in Alabama is generally considered Alabama-sourced, regardless of employer location. Meanwhile, income earned while domiciled outside Alabama is Alabama-sourced only if the economic activity occurred within the state—such as performing work in Alabama, operating a business there, or earning income from Alabama property. Deductions must also be apportioned: some are fully allowed, while others (e.g., certain business expenses) must be split proportionally. Accurate allocation ensures the tax is calculated only on income legally attributable to Alabama. Completing this allocation carefully often prevents over-taxation and produces a fair representation of your Alabama tax liability.
What is Alabama Schedule ATP and when is it required?
Alabama Schedule ATP is used to calculate and report additional taxes and penalties that arise when certain tax conditions are not met. Unlike other schedules that compute income or deductions, Schedule ATP focuses on situations such as early withdrawal penalties on education savings accounts, repayment requirements for certain credits, penalties for failure to file or pay timely, and other special-case tax assessments defined under Alabama law. This schedule functions as a central place where all supplemental taxes must be disclosed to ensure the taxpayer’s Form AL-40 or AL-40NR accurately reflects total liability. Failing to include required ATP entries may lead to ADOR corrections, additional assessments, or interest charges. Because of this, Schedule ATP is an essential compliance document for taxpayers who triggered any mid-year disallowed benefits, timing-related penalties, or other exceptions.
Are HSA contributions pre-tax for Alabama?
Generally pre-tax federally and often for Alabama; confirm in the state section and add in the calculator.
What is Alabama Schedule DC used for?
Schedule DC allows Alabama taxpayers to claim a deduction for qualified dependent-care expenses that enable them to work or actively seek employment. These expenses may include daycare, after-school programs, in-home childcare, or care for a disabled spouse or dependent who cannot care for themselves. Alabama’s rules parallel many federal provisions but apply at the state-deduction level rather than as a credit. To use Schedule DC, both spouses must have earned income when filing jointly unless one spouse is disabled or a full-time student. The deduction is limited by earned income, the dependency status of the individual receiving care and Alabama’s maximum per-dependent limits. Proper documentation is required for all expenses.
How does Alabama treat passive activity losses and out-of-state pass-through income?
Alabama generally follows federal passive-activity rules but requires taxpayers to separately identify passive losses on Schedule E so they can be applied only where permitted. If you have losses disallowed at the federal level, they remain disallowed in Alabama unless the state provides a separate exception. For pass-through income earned in another state, Alabama requires residents to report the full amount, then claim any allowable adjustments or credits on other schedules such as Schedule CR. The Schedule E calculator prepares totals that flow into Alabama Form 40 so the correct taxable amount appears on the return.
Important Notes
All calculations are estimates for guidance only. Always review your return and consider professional advice when submitting official filings.