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.
Quick Access Tools
Frequently Asked Questions
What records should taxpayers keep to document capital gains and losses reported on Schedule D?
Taxpayers should retain brokerage statements, consolidated 1099 forms, purchase confirmations, sale confirmations, cost-basis records, improvement receipts for real property, and depreciation schedules for any assets subject to annual deductions. Alabama audits often focus on basis accuracy and verification of loss carryovers, so keeping documentation for both acquisition and sale is essential. For long-term holdings, records may go back many years and should be stored securely. Even when brokerage firms track basis, taxpayers bear ultimate responsibility for accuracy. Maintaining detailed records ensures clean reporting and reduces the risk of adjustments or disallowed losses during review.
Does sales or property tax affect this page?
This page models income/payroll taxes only; other taxes affect your budget, not paycheck math.
Where can I get help understanding complex allocation scenarios on AL-40NR?
Complex allocation issues—such as multi-state employment, remote work with periodic Alabama presence, cross-border business operations, or shared pass-through ownership—often require careful review to avoid over-reporting or under-reporting Alabama income. You can begin by exploring the detailed nonresident calculator at https://www.taxformcalculator.com/calculator/alabama/al-40nr.html, which helps you model income scenarios and validate your allocation percentages. This tool can be especially helpful for part-year movers who had pay originating in one state while performing duties in another. It also assists in identifying which adjustments and credits need to be prorated. For filers with pass-through entities, rental property, or substantial business activity, methodical use of the calculator can prevent errors that may otherwise lead to amended returns, delayed refunds, or Alabama Department of Revenue inquiries.
Why don’t my brackets match payroll tables?
Employers may use different rounding/timing tables; small variances are normal.
What documentation should taxpayers keep to support KRCC-I claims?
Taxpayers must retain the original Alabama Capital Credit certificate, pass-through K-1 statements showing their credit allocation, project approval letters from the Alabama Department of Commerce, prior-year KRCC-I schedules reflecting carryforward balances and the certified project number. Supporting documentation must demonstrate the taxpayer’s ownership interest for each period in which the credit is claimed. While Alabama does not require filing all documents with the return, the Department of Revenue can request them at any time, and incomplete documentation may result in a denied or reduced credit. These records should be retained for the full credit duration, as claims may span up to 20 years.
Important Notes
All calculations are estimates for guidance only. Always review your return and consider professional advice when submitting official filings.