tax-law alabama
Is 5% the maximum income tax for an individual in Alabama?
<p>Not talking about for businesses or fancy legal setups or anything - just someone who's working for somebody and needs to pay income tax, whether any has been withheld through the year or not.  Is 5% the maximum they would have to pay?  This seems to indicate that, but I wanted to make sure there wasn't something that was being missed:</p>

<blockquote>
  <p>&#8226; &nbsp;<i>What are Alabama's individual income tax rates?</i><br /><br>
  For single persons, heads of families, and married persons filing separate returns:<br /><br>
  2% &nbsp;&nbsp;&nbsp;First $500 of taxable income &nbsp;4% &nbsp;&nbsp;&nbsp;Next $2,500 of taxable income &nbsp;5% All taxable income over $3,000<br /><br>
  For married persons filing a joint return:<br /><br>
  2% &nbsp;&nbsp;&nbsp;First $1,000 of taxable income &nbsp;4% &nbsp;&nbsp;&nbsp;Next $5,000 of taxable income &nbsp;5% All taxable income over $6,000  </p>
</blockquote>

<p>src: <a href="https://revenue.alabama.gov/incometax/itfaq01.cfm" rel="nofollow">https://revenue.alabama.gov/incometax/itfaq01.cfm</a></p>

<p>You are correct. The amount of tax given as a function is:</p>

<ul>
<li>tax(income) = 0.02 x income if income &lt;= 500</li>
<li>tax(income) = 10 + 0.04 x (income - 500) if income &lt;= 3000</li>
<li>tax(income) = 110 + 0.05 x (income - 3000) if income > 3000</li>
</ul>

<p>The limit of tax rate as the income grows without bound is found thus:</p>

<ul>
<li>lim tax(income) / income</li>
<li>= lim (110 + 0.05 x (income - 3000)) / income</li>
<li>= lim (110 + 0.05 x income - 150) / income</li>
<li>= lim 110/income + lim (0.05 x income) / income - lim 150/income</li>
<li>= 0 + lim 0.05 - 0</li>
<li>= 0.05</li>
</ul>

<p>This means nobody actually pays 5%, but high-income taxpayers can get arbitrarily close to it. For instance, the effective tax rate on a taxpayer with a taxable income of $200k is 4.98%.</p>

<p>In particular, you didn't miss anything, with the possible exception of penalties (e.g., failure to pay tax on time and in the proper amounts, potentially penalties on the early withdrawal of tax-advantaged savings, etc.) Those could easily raise the effective tax rate above 5%.</p>
