16 December 2025 Alabama Department of Revenue publishes analysis of state tax conformity with OBBBA For state income tax and withholding purposes, Alabama conforms to the federal Internal Revenue Code (IRC) on a rolling forward basis but only for those IRC sections explicitly referenced in Alabama's statutes. Because the OBBBA adds new sections/subsections to the IRC, some of its provisions are not currently coupled with Alabama's tax code. The Alabama legislature could address some of these conformity gaps when it reconvenes in January 2026. The chart on the following page summarizes the employment tax and benefits provisions of the OBBBA and whether the current Alabama tax code conforms to those provisions. (See Tax Alert 2025-1476 for more information on the compensation and benefits provisions of the OBBBA.) Alabama conformity with the OBBBA — employment tax, compensation and benefits Internal Revenue Code | Code of Alabama* | Description | Effective date | Federal conformity | 132(f)(8) | 40-18-14(a)(3)k | Bicycle commuting benefits. Makes permanent the exclusion from gross income for bicycle commuting benefits. | January 1, 2026 | Yes | 217(k), 132(g)(2) | 40-18-15(a)(1 8), 40-18-14(a)(3)k | Moving expenses. Makes permanent the elimination of the deduction for moving expenses except for members of the Armed Forces and certain members of the intelligence community. | January 1, 2026 | Yes | 224 | N/A | No tax on tips. Creates deduction from gross taxable income for qualified tips up to $25,000. | January 1, 2025 (sunset 2028) | No | 225 | N/A | No tax on overtime. Creates deduction from gross taxable income for qualified overtime pay. | January 1, 2025 (sunset 2028) | No | 128, 139J | N/A | Employer contribution to Trump Accounts. Excludes from gross income amounts paid by employers as a contribution to the Trump account of the employee or dependents up to $2,500 per year. | January 1, 2026 | No | 45S | N/A | Paid family and medical leave employer tax credit. Makes permanent the business tax credit based on wages or premiums paid by employers for paid family and medical leave (was set to expire December, 31, 2025) | January 1, 2026 | No | 274(o) | 40-18-15(a)(20) | Limitations on deductions for business meals. Disallows an employer deduction for food or beverages provided to employees through an eating facility and meals provided to employees for the convenience of the employer. | January 1, 2026 | Yes | 45F(a)(1) | N/A | Enhancement of employer-provided childcare credit. Increases the tax credit for employers that provide childcare to their employees. | January 1, 2026 | No | 129(a)(2)(A) | 40-18-14(a)(3) | Dependent care assistance. Increases the maximum exclusion from taxable wages for dependent care assistance from $5,000 to $7,500. | January 1, 2026 | Yes | 127(c)(1)(B) | N/A | Educational assistance. Makes permanent that employer payment of a student loan is included in qualified educational assistance and subjects the maximum exclusion of $5,250 to annual inflation adjustments. | January 1, 2026 for student loans, January 1, 2027 for inflation adjustments to maximum exclusion | No | 3134 | N/A | Employee retention credit. Does not allow employee retention credit or refund of the employee retention credit after July 4, 2025. | July 4, 2025 | No | 223(c)(2) | 40-18-15.6(a)(b) | Health Savings Accounts-telehealth. Makes permanent the provision that allows HSA contributions to health plans that provide telehealth and other remote services. | January 1, 2025 | Yes | 223(c)(2) | 40-18-15.6(a)(b) | Health Savings Accounts-bronze/ catastrophic plans. Expands eligibility to make deductible HSA contributions to those who have a bronze-level or catastrophic health insurance plan through a health insurance exchange. | January 1, 2026 | Yes | 223(c)(1) | 40-18-15.6(a)(b) | Health Savings Accounts-direct primary care service arrangements. Expands eligibility to include individuals who have a direct primary care service arrangement with a fixed period fee that does not exceed $150 a month or $300 if it covers more than one individual. | January 1, 2026 | Yes |
Employers should make a note of the differences between the federal and Alabama tax codes and monitor state legislative developments closely in the coming year. Employers should also be aware that other states may conform differently to the OBBBA, making this an essential state research activity moving into 2026. | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: Workforce Tax Services - Employment Tax Advisory Services | | Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor |
Document ID: 2025-2525 |
