Any Alabama preparers here?

[schirallicpa]

I have a new client.  Not sure why I decided to take on this one.  So far everything out of theor mouths has been questionable.  But he has a W2 from a church (in Alabama) and claims that Alabama does not tax clergy.  The w2 does not list state wages.  I cannot find where clergy would be exempt from AL income tax.  Can anybody confirm?  

(the spouse is a "spiritual leader" that deducts $2000 depreciation on her Sch C each year in lieu of a clergy allowance)()

[Corduroy Frog]

I do several Alabama returns each year.  Your new client is horribly confused about a number of things, including differences between Federal and Alabama taxation of ministers.

Part of the problem, especially with smaller churches, is that no one in their church is knowledgeable about issuing W-2s, 1099s, housing allowance, etc.  Larger churches who have CPA members generally don't have that problem.

[Slippery Pencil]

https://www.revenue.alabama.gov/faqs/are-any-employees-exempt-from-withholding-tax/

Are any employees exempt from withholding tax?

Yes, the chief classes of exempt employment are domestic services in private homes, merchant seamen, duly ordained ministers performing duties of their ministry, and agricultural employees. Although these wages are exempt from withholding tax requirements, the wages do represent taxable income and should be reported by the employee on their individual income tax return. Employers should provide both the employee and the Department with a copy of Form W2 reflecting the wages earned by the employee for that year. For more information on these classes of exemption, please see page 2 of the Withholding Tax Tables and Instructions for Employers.

[Corduroy Frog]

Yes, in a strange turn of events, effective 01/01/24 employees that are paid overtime premium have their OT Premium totally exempt - not only from withholding, but from taxation entirely. 

[Medlin Software, Dennis]

1 hour ago, Corduroy Frog said:

Yes, in a strange turn of events, effective 01/01/24 employees that are paid overtime premium have their OT Premium totally exempt - not only from withholding, but from taxation entirely. 

IIRC, it is a political attempt to keep work locations within AL, rather than a neighboring state. Maybe the first attempt to directly reward for not having out of state remote workers. (And not that different than how GA, for instance, rewards with tax breaks for TV type productions - why so many things are filmed in GA.)

I would not call it strange in the payroll world. All seems to be fair game at present (anything goes). Wayfair ruling has emboldened states to cross their borders to gain income, so now a state is at least temporarily rewarding for staying within their borders. With the rise of many min wage to more than double the federal number, employers are wisely looking at lower min wage states to have employees performing services, especially if there is low or no company income tax nexus caused by the remote worker.