An amount up to $25,000 shall be exempt from Alabama state income tax if received as severance, unemployment compensation, or termination pay, or as income from a supplemental income plan, or both, by an employee who, as a result of administrative downsizing, is terminated, laid-off, fired, or displaced from his or her employment. If the exempt severance pay is included in your state wages, contact your employer for a corrected W-2.

If your employer will not give you a corrected W-2, an adjustment will need to be made to other income on your Alabama income tax return. To make this adjustment:

1. From within your TaxACT return (Online or Desktop), click on the State Q&A tab and then click Alabama directly below the blue tabs
2. Click Income to expand the category and then click Other Income
3. Enter "Exempt Severance Wages" in the description field and enter the amount of severance wages received as a negative number (up to -$25,000) in the amount field. Example: Exempt Severance Wages -10000