Following the Alabama Legislature’s first 2015 special session, Gov. Robert Bentley signed the Alabama Taxpayer Fraud Prevention Act.
The new law, effective Sept. 1, 2015, requires employers to withhold state income taxes from all employees, including those who were previously exempt. Any employee who has a Form A-4E on file with an employer needs to complete and provide their employer with a Form A-4 (2014 revision).
All employees must now file an annual income tax return with the Alabama Department of Revenue and claim a refund, if entitled to one.
“Employers will see a new message in their My Alabama Taxes (MAT) account detailing the changes effective September 1st,” said Neal Hearn, who heads the withholding tax section of ADOR. “We plan to get a message on the department’s Facebook page as well,” added Hearn.
The new law seeks to keep working Alabamians who should be paying income taxes from avoiding those taxes. At the time of the law’s passage, state fiscal experts said they expected it to result in a $10 million to $12 million increase in revenue for the state’s Education Trust Fund.
Prior to the bill’s signing, a provision in Alabama law allowed taxpayers to be exempt from withholding state income tax from their wages by certifying that the employee incurred no state tax liability in the previous taxable year and anticipated that they would not incur a liability for state income tax in the current year.
The Alabama Department of Revenue reported an abuse of this provision. According to ADOR, taxpayers were avoiding paying income taxes by completing a withholding exemption certificate claiming a total exemption from withholding taxes and then not filing Alabama income tax returns, even though they actually had a tax liability. Based on that information, the governor included the legislation in his call for the special session.
In the event an employee does not provide a Form A-4 to their employer, the employer must withhold income taxes using no exemptions. If an employee inflates the number of exemptions allowed, the employee will be subject to a $500 fine. If an employee claims eight or more exemptions, the employer must submit a copy of the A-4 to the Department of Revenue within 60 days or face a $50 penalty, according to state law.
The Nonresident Military Spouse Withholding Exemption is not impacted by this change, Hearn explained. “It will be business as usual,” he said. Military spouses filing a withholding exemption do have to fill out a separate form, known as Form A4-MS.