Alabama payroll setup for your first hire

Alabama takes state income tax from paychecks. Those amounts sit with the Department of Revenue, not the Department of Workforce.

Alabama takes state income tax from paychecks. This is not Texas, Florida, Washington, or Tennessee. Those states do not take state income tax from paychecks. A federal Employee’s Withholding Certificate (Form W-4) is not the Alabama certificate.

ADOR is the Alabama Department of Revenue, the income-tax office. Vendor pages also write ALDOR. Ala. Code § 40-18-71 says every employer that pays wages must withhold Alabama income tax. Ala. Admin. Code r. 810-3-71-.01 says all employers or withholding-tax agents must register with the Department of Revenue before withholding Alabama income tax, and must register online for a withholding tax account number. The withholding-account FAQ restates that rule for employees working in Alabama. Register on My Alabama Taxes, also called MAT, the Department of Revenue e-services portal. The FAQ and the Business Tax Online Registration page send a new shop to “Register a business/Obtain a new tax account number.” The Department of Revenue assigns a 10-character withholding tax account number that begins with R. Hold that number. A federal Employer Identification Number, called FEIN, is not that number. A Department of Workforce unemployment login is not that number. A payroll login is not either account.

The Department of Revenue’s registration page says a new account number often arrives in three to five days. That line is agency processing guidance. It is not a 15-day California registration clock. Do not copy that clock onto Alabama.

Employees complete Form A-4, Alabama Employee’s Withholding Tax Exemption Certificate. The April 2025 Form A-4 says every employee must give you a signed Alabama certificate on or before the first day of work. The federal W-4 is not that Alabama certificate. If a new hire does not give you Form A-4, withhold using zero exemptions. If an employee claims eight or more dependent exemptions, or you believe the certificate is wrong, the form tells you to contact the Withholding Tax Section. Keep the certificate. The 2026 Withholding Tax Tables and Instructions booklet repeats that the federal W-4 cannot stand in for Form A-4.

Alabama does not add a county income tax on the same withholding file. This is not Maryland’s county or Baltimore City tax. Some Alabama cities take a local occupational tax. The 2026 booklet says state unemployment tax and local occupational taxes are not administered by the Department of Revenue. Contact the city or county that collects that tax. A My Alabama Taxes withholding account does not open those local files. An eGov login does not either.

All registered shops file Form A-1, Employer’s Quarterly Return of Income Tax Withheld, by the last day of the month after the quarter, even if no tax was withheld. Ala. Admin. Code r. 810-3-74-.01 and the 2026 booklet add Form A-6, the monthly return, when the amount withheld in the first or second month of a quarter is more than $1,000. File Form A-3, the annual reconciliation, with Forms W-2 by January 31. The booklet says a single withholding payment of $750 or more must be filed and paid electronically on My Alabama Taxes. A payment is not a return. The withholding number still sits with the Department of Revenue. The unemployment number still sits with the Department of Workforce.

When you owe unemployment: $1,500 in a quarter, or one person in 20 weeks

ADOW is the Alabama Department of Workforce. The office used to be the Alabama Department of Labor. Governor Ivey’s February 2025 announcement says the rename took effect February 1, 2025, under the Alabama Workforce Transformation Act. Unemployment Compensation, often called UC, still sits with that department. That tax is often called SUTA, state unemployment tax, or SUI, state unemployment insurance. The UC tax-liability FAQ restates the regular-shop test. You become liable if you pay $1,500 or more in wages in any calendar quarter, or you have at least one worker on some day in 20 or more different weeks, during the current or preceding calendar year. Ala. Code § 25-4-8 prints the same $1,500-quarter or 20-week test. The weeks need not be consecutive. The worker need not be the same person each week. Domestic shops use a $1,000-quarter test. Agricultural shops use a $20,000-quarter test, or 10 workers in 20 weeks. A 501(c)(3) nonprofit becomes liable at four workers in 20 weeks. A shop already liable under the Federal Unemployment Tax Act, called FUTA, with Alabama employees is also liable. This scorecard is the regular-business path.

This is not California’s $100-in-a-quarter test. There is no 15-day California clock on the Department of Workforce page. Do not copy that clock onto Alabama. This is not Oregon’s $1,000-quarter or 18-week test. Do not copy an 18-week clock onto Alabama. This is not Indiana’s $1 covered-wage test. Do not copy that $1 test onto Alabama. This is not Maryland’s one-worker clock from the first day of business. Maryland also tells shops to file a Combined Registration Application within 20 days of opening. Alabama’s Form SR-2 is not that Maryland form. Minnesota tells shops not to register unemployment until covered wages have actually been paid. The Alabama registration FAQ says file Form SR-2 as soon as liability has been established. That “as soon as” line is agency guidance. It is not a 15-day statute clock. South Carolina uses the same $1,500-quarter or 20-week pair. South Carolina’s unemployment office is not the Department of Workforce. Georgia uses that same pair. Georgia’s unemployment office is not the Department of Workforce. Tennessee uses that same pair and does not take state paycheck withholding. Alabama does take state paycheck withholding. Do not treat Alabama like a no-withholding state.

The Department of Workforce assigns an Alabama Employer Account Number, often called EAN. The UC employer information page uses that unemployment account on eGov, on Form SR-2, and on the tax-rate notice. Hold the number. Do not substitute a federal EIN for that number. Do not substitute the R-account withholding number.

Register unemployment on eGov with Form SR-2. File later wage reports on the same portal.

Those are two doors on the same Department of Workforce office. eGov is Electronic Government Services, the unemployment-tax portal. The eGov page says Employer Registration / Account Status is where you register for a state unemployment insurance account number on Form SR-2, Application to Determine Liability. The new-employer registration FAQ says complete Form SR-2 as soon as liability has been established. You can file that application on eGov or send the paper Form SR-2 to the Status Unit. After the account exists, file the quarterly Contribution and Wage Report on the same portal. The eGov page names those files Form UC-CR-4 and Form UC-10-R. A quarterly wage report is not the new-hire report.

The UC employer information page says those quarterly reports are due the last day of the month after the quarter: April 30, July 31, October 31, and January 31. File online. The same page says all taxes due are payable, even if the amount is under $1. Part-time wages count.

The same page answers “What is the new account rate?” Employers newly liable pay tax at 2.70% on the first $8,000 of wages for each employee. Subsequent rates come from experience rating. Inclusive of the 0.06% Employment Security Enhancement Assessment, called ESA, an experience-rated shop can sit between 0.20% and 6.80% depending on the schedule in effect, plus any shared cost. Ala. Code § 25-4-54 prints the rate table. Use the rate on your tax-rate notice and on eGov, not a number from a software page. New shops at the 2.70% entry rate do not download a computer-generated notice until an individualized rate exists.

New hire is a seven-day Department of Workforce report. An eGov wage report does not take it.

The new-hire report is a list of who you just hired. It is not a box on the quarterly unemployment wage report. The Alabama New-Hire page requires a report of each newly hired or recalled employee within seven days from the date of hire or reemployment. File at labor.alabama.gov/NewHire. Ala. Code § 25-11-5 sets that clock at seven days for each new hire, recall, or rehire. The same statute lets electronic shops transmit twice a month, no fewer than 12 days and no more than 16 days apart. A rehire after a 60-day unpaid gap counts as a new hire. The New-Hire page and the December 2025 updated-portal notice restate the seven-day clock. The new portal started December 4, 2025. Register with the federal EIN and the Alabama Employer Account Number. A quarterly eGov wage report does not contain that clock. This is not Georgia’s 10-day report. This is not South Carolina’s 20-day Department of Social Services report. This is not Kentucky’s 20-day Office of the Attorney General report. This is not Tennessee’s 20-day Department of Human Services report. This is not Massachusetts’s 14-day Department of Revenue report.

Shops with five or more employees must file on the internet. Shops with fewer than five employees may use the portal or mail a copy of the federal W-4 with the first day of work and a new-hire or recall mark. The payroll service can send the file. The clock still sits on you.

Workplace injury insurance is due when you regularly employ five or more people. The Workers’ Compensation Division does not sell the policy.

This is Tennessee’s five-employee wait for an ordinary shop. It is not Florida’s four-employee wait. It is not South Carolina’s four-employee wait. It is not Kentucky’s first-employee path. It is not Oregon’s first-subject-worker path. It is not Wisconsin’s three-employee or $500-quarter path. It is not the three-employee-only test used in Georgia, North Carolina, or Virginia. It is not Texas optional coverage. It is not Washington’s exclusive state fund. It is not Ohio’s Bureau of Workers’ Compensation monopoly. Alabama calls this workers’ compensation.

Ala. Code § 25-5-50 does not apply the Act to a shop that regularly employs fewer than five employees in any one business, other than the business of constructing or assisting on-site in the construction of new single-family, detached residential dwellings. The insurance-requirement page restates that five-employee rule. Full-time workers, part-time workers, and officers of a corporation count. Domestic work, farm labor, casual work, and a municipality under 2,000 people sit on other exemptions. A shop under five may elect coverage by written notice. This scorecard is the regular-business path. New single-family home construction does not get the under-five exemption.

The Workers’ Compensation Division does not sell that policy. The same page lists licensed commercial insurance on the voluntary market, the assigned-risk pool administered by the National Council on Compensation Insurance, called NCCI, a group self-insurance fund, or individual self-insurance if the shop qualifies. That assigned-risk path is not a Washington-style exclusive state fund. A payroll login is not a policy.

How Gusto and Patriot describe Alabama

Confirm the live R-account withholding number on My Alabama Taxes. Confirm the Employer Account Number and rate on eGov and on the tax-rate notice. Confirm workplace injury insurance with a licensed carrier or on the Workers’ Compensation insurance-requirement page. Confirm any city occupational tax with that collector.

Gusto’s Alabama help article says Middesk (Gusto’s business-verification company) may register state income-tax withholding and state unemployment insurance (SUI). It names the Alabama Department of Revenue for withholding and the Alabama Department of Labor for unemployment tax. That Labor name is the old department title. Unemployment now sits with the Department of Workforce. The article restates the $1,500-quarter or 20-week unemployment test. It says Alabama is a state that mails tax-account letters to the business. It calls the withholding number nine digits after a letter, for example R123456789, and points to Form A-1 and My Alabama Taxes. That format matches the Department of Revenue’s 10-character R-account. It says an online unemployment registration often returns the account number immediately. It lists Form A-1, Form A-6, Form A-3, Form UC-CR4, and an Alabama new-hire report among Alabama files. It tells shops to enter the rate from Box 6 of the tax-rate notice and not to enter the ESA line. It also tells shops to fax a notarized Power of Attorney before Gusto can file unemployment tax. Middesk’s standard order does not open local occupational taxes. The article names Avenu Insights / Revenue Discovery Systems, now called Neumo, for some city files, and names Birmingham, Auburn, and Gadsden as separate collectors. Those local doors are what the software page says. Confirm the live collector with the city. Read Gusto’s Alabama article. See Gusto on the directory.

Patriot’s registration article tells new shops to register with the Alabama Department of Revenue on the Combined Registration / Application path, which opens My Alabama Taxes, and says the withholding number often arrives in three to five business days. That processing line matches the Department of Revenue registration page. The same article tells shops to register unemployment with the Alabama Department of Labor online. That Labor name is the old department title. Use eGov. The article prints a 2026 new-employer SUTA rate of 2.7%. That number matches the Department of Workforce’s 2.70% new-account rate on the first $8,000. Use the rate on your tax-rate notice, not a number from a software page. The same article tells employees to complete Form A-4 and puts the seven-day new-hire report on the Alabama Department of Labor. It lists many Alabama cities with local income taxes. Confirm those collectors with the city. The article also says workplace injury insurance is due if you have five or more employees, through a private provider or a state-operated fund. The five-employee line matches Ala. Code § 25-5-50. The state-operated-fund line is what the software page says. The Division’s ordinary path is a licensed private policy, the NCCI assigned-risk program, a group fund, or approved self-insurance. It is not a Washington-style exclusive state fund. Read Patriot’s registration article. See Patriot on the directory.

What still sits on the employer

• Decide that you have hit $1,500 in a quarter or one person in 20 weeks. Agricultural, domestic, nonprofit, and FUTA-liable shops use other tests.
• Complete My Alabama Taxes so the Department of Revenue can issue the R-account withholding number. Complete eGov Form SR-2 so the Department of Workforce can issue the Employer Account Number.
• Hold the 10-character R-account withholding number. Hold the Employer Account Number. Do not substitute a federal EIN for either number.
• Enter the premium rate from the tax-rate notice, not a marketing figure. The Department of Workforce prints 2.70% on the first $8,000 for a newly liable shop. Confirm the live notice.
• File the quarterly unemployment wage report on eGov after the account exists, even in a zero-wage quarter until the Department of Workforce closes the file.
• Register withholding on My Alabama Taxes before the first withheld paycheck. Collect Form W-4 and Form A-4. A federal W-4 is not the Alabama certificate. File Form A-1, and Form A-6 when the monthly $1,000 test is met, on the schedule the Department of Revenue assigns. File Form A-3 by January 31.
• Register any city occupational tax with that collector. Those collectors are not the Department of Revenue.
• File the seven-day new-hire report with the Department of Workforce at labor.alabama.gov/NewHire. A quarterly eGov wage report does not satisfy that clock.
• Buy workplace injury insurance when you regularly employ five or more people, including part-time workers and corporate officers. New single-family home construction does not wait for five. The Workers’ Compensation Division does not sell that policy. Payroll software does not issue that policy.
• Do not copy another state’s clock onto Alabama. Alabama does not use California’s $100-quarter test. Alabama does not use Oregon’s $1,000-quarter or 18-week unemployment test. Alabama does not use Indiana’s $1 unemployment test. Alabama does not use Maryland’s one-worker Combined Registration Application clock. Alabama does not wait to register unemployment the way Minnesota waits for covered wages. Alabama does not skip state paycheck withholding the way Texas, Florida, Washington, or Tennessee do. Alabama does not add county income tax the way Maryland does. Alabama does use Tennessee’s five-employee workplace-injury wait for an ordinary shop. Alabama does not use Florida’s or South Carolina’s four-employee wait. Alabama does not use Kentucky’s first-employee path. Alabama does not use Wisconsin’s three-employee or $500-quarter path. Alabama does not use the three-employee-only wait used in Georgia, North Carolina, or Virginia. Alabama does not use Georgia’s 10-day new-hire clock. Alabama does not use a 20-day new-hire clock. Alabama does not use Washington’s exclusive state fund. Alabama does not use Ohio’s Bureau of Workers’ Compensation monopoly.

Also forming a company in Alabama? Process Score compares registered agents there.