Self-employed taxes and LLC costs in Alabama, 2026
Alabama charges a one-time filing fee, then mostly leaves a small LLC alone; the income tax and the city license taxes do the rest.
Total tax on this income in 2026
$21,485
Put aside 25% of each payment · $5,371 per quarter
| Self-employment tax (15.3%) | $12,010 |
| Federal income tax | $5,790 |
| Alabama income tax | $3,685 |
| QBI deduction used | $12,579 |
| Effective rate on all income | 25.3% |
With an S corp election and a $34,000 salary, about $3,512 less tax (check it).
Computed by Radif Partners from IRS and Alabama agency documents read on October 15, 2026 · How we calculate
Forming an LLC in Alabama costs $200 with the Secretary of State, and there is no annual report to file there afterward. The only recurring state filing is the Business Privilege Tax return, which for tax year 2026 is not required when the tax works out to $100 or less, so a one-person LLC with modest net worth usually pays nothing after the first year. Business profit is taxed through the owner's return at graduated rates that reach 5 % above $3,000 of taxable income for a single filer. On $75,000 of profit, a single filer owes about $3,220 to Alabama and $18,715 in all once self-employment tax and federal income tax are added. At $120,000 of profit with a $50,000 salary, the S corp election saves about $5,015 a year here, since Alabama follows the federal election and puts no entity tax on the corporation.
Alabama at a glance, 2026
| LLC filing fee | $200 |
| None with the Secretary of State; the Business Privilege Tax Return (Form PPT) is filed with the Department of Revenue only when the privilege tax exceeds $100 | none |
| Income tax | 2 % to 5 % |
| S corporation election | followed by the state |
| Tax on $75,000 of profit (single) | $18,715 in all, $3,220 to Alabama |
Few states make the ongoing cost of an LLC this small. Alabama has dropped the old $100 floor of its Business Privilege Tax: for 2026, a company whose privilege tax comes to $100 or less files no Form PPT and pays nothing (ALDOR, 2026 Form PPT instructions). The tax itself is a levy on Alabama net worth, from $0.25 to $1.75 per $1,000 depending on how much federal taxable income is apportioned to the state, capped at $15,000 for S corporations, LLCs and disregarded entities. For a consultant whose company holds a laptop and a few months of cash, the computed amount stays far below the filing point.
State income tax on a freelance profit
Alabama income tax
$3,917
| State share of profit | 4.4% |
| Total with federal | $23,233 |
An income tax with a federal deduction built in
Alabama's brackets are short and low: 2 % on the first $500, then 4 %, then 5 % on everything above $3,000 for a single filer. That top rate starts so early that almost all freelance profit is taxed at it. Two features soften the result. Federal income tax paid is deductible on the Alabama return, and the standard deduction shrinks as income rises, so a higher earner loses part of it (ALDOR withholding tax tables, 2026).
Estimated payments are expected once you anticipate owing at least $500 to Alabama after credits, on Form 40ES. The 2026 instructions put the fourth installment on January 15, 2027, although an older department FAQ still shows December 15 (Form 40ES instructions, 2026). The quarterly estimated tax guide covers the federal side of the same four dates.
City license taxes come on top
The Department of Revenue does not run municipal business licenses, and many Alabama cities and counties charge their own license tax, often measured on gross receipts (ALDOR, Business Privilege Tax). Birmingham also lists an occupational tax among the levies filed through its online system; its rate and whether it reaches a self-employed owner's earnings could not be confirmed on a city page, so this site does not compute it. Check the Birmingham tax and license division before you open there. Our page on local business taxes explains how these city levies differ from income taxes.
The S corporation route
Alabama follows the federal S election and adds no separate corporate tax beyond the same privilege tax an LLC files. Payroll brings the state unemployment tax: a new employer pays 2.7 % on the first $8,000 of each employee's wages, the owner's salary included. Since tax years beginning in 2021, an S corporation or partnership may also elect to pay Alabama tax at the entity level, at 5 percent of its Alabama Schedule K income, by checking a box on a timely Form 20S or 65 (ALDOR, electing pass-through entities). The LLC vs S corp calculator shows where the payroll saving starts for your own profit.
Alabama income tax brackets
| Taxable income, single | Rate | Taxable income, joint | Rate |
|---|---|---|---|
| $0 to $500 | 2 % | $0 to $1,000 | 2 % |
| $500 to $3,000 | 4 % | $1,000 to $6,000 | 4 % |
| over $3,000 | 5 % | over $6,000 | 5 % |
City and county taxes on business income in Alabama
| Place | Tax | Rate | Who pays |
|---|---|---|---|
| Birmingham | Occupational tax (occupational license fee) | varies | Not verified |