Alabama Form 40 Schedule B – Interest and Dividend Income (2026)
Last reviewed: 2025-11-11
Use the Alabama Tax Form Calculator Alabama Form 40 Schedule B – Interest and Dividend Income as a stand alone tax form calculator to quickly calculate specific amounts for your 2026 Alabama state tax return. Alternatively, you can use one of our Combined Federal and State Tax Estimators to quickly calculate your salary, tax, and take-home pay.
Schedule B of the Alabama Form 40 is used to report interest and dividend income earned during the tax year. Alabama residents must list all interest and dividends received from U.S. corporations, savings accounts, bonds, and other investments. Certain types of interest income — such as interest from U.S. Treasury obligations or Alabama municipal bonds — are exempt from Alabama income tax, while interest from other states or foreign sources is taxable.
This schedule helps ensure all taxable income is included on your Alabama Individual Income Tax Return (Form 40) and that exempt sources are properly deducted.
How to Complete Alabama Schedule B
List all types of interest and dividends separately on Lines 1 through 9. Then:
- Enter exempt interest such as U.S. Treasury bills or Alabama municipal bonds on Lines 1–2.
- Include taxable interest from out-of-state bonds, savings, or investment accounts on Lines 3–4.
- Report dividends received from U.S. and foreign corporations on Lines 5–6, and note any capital gain distributions on Line 8.
- Total all entries on Line 10, subtract exempt interest on Line 11, and record the taxable total on Line 12.
The result on Line 12 transfers to Form 40, Line 5 as part of your taxable income.
| 1 | Interest on U.S. obligations (non-taxable) | |
| 2 | Interest on Alabama municipal obligations (non-taxable) | |
| 3 | Interest from other state/municipal bonds | |
| 4 | Interest from savings and bank deposits | |
| 5 | Dividends from U.S. corporations | |
| 6 | Dividends from foreign corporations | |
| 7 | Other dividends (specify) | |
| 8 | Capital gain distributions | |
| 9 | Other interest (describe) | |
| 10 | Total interest and dividend income (add Lines 1–9) | |
| 11 | Exempt interest (e.g., qualifying municipal obligations) | |
| 12 | Taxable interest and dividend income (Line 10 − Line 11) |
Examples and Scenarios
Example 1 – Tax-Exempt Interest: Emily earned $1,200 from U.S. Treasury bonds and $300 from Alabama municipal bonds. Both are exempt, so she reports them on Lines 1 and 2 but they are excluded from taxable income.
Example 2 – Mixed Income: Jordan received $450 interest from an out-of-state bond and $2,000 dividends from U.S. corporations. The bond interest (Line 3) and dividends (Line 5) total $2,450, all of which is taxable since only Alabama or federal direct obligations are exempt.
Example 3 – Foreign Dividend: A taxpayer with $500 dividends from an international mutual fund reports that amount on Line 6, fully taxable under Alabama law.
Last reviewed: 2025-11-11: If you believe this form requires an update, please contact us.
Additional Resources
- Form 40 – Alabama Individual Income Tax Return
- Form 40 Schedule A – Itemized Deductions
- Alabama Department of Revenue – Individual Income Tax
Always retain statements from banks, brokers, or mutual funds detailing interest and dividend payments. The Alabama Department of Revenue may request verification during audits to confirm that exempt income was properly identified.
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Frequently Asked Questions
What is Alabama Schedule KRCC-I used for?
Schedule KRCC-I is required for taxpayers who receive a share of the Alabama Capital Credit from qualifying industrial or commercial projects. This credit, established to encourage economic development, allows project investors or pass-through entity members to apply a portion of the approved credit to their Alabama individual income tax. Schedule KRCC-I documents the project name, certificate number, annual credit share, carryforward amounts and the portion being applied to the current year’s income tax liability. The form ensures that taxpayers do not exceed their allowable credit and provides Alabama with an audit trail linking each credit claim to the certified project under the Alabama Capital Credit Act.
What documentation should taxpayers keep to support KRCC-I claims?
Taxpayers must retain the original Alabama Capital Credit certificate, pass-through K-1 statements showing their credit allocation, project approval letters from the Alabama Department of Commerce, prior-year KRCC-I schedules reflecting carryforward balances and the certified project number. Supporting documentation must demonstrate the taxpayer’s ownership interest for each period in which the credit is claimed. While Alabama does not require filing all documents with the return, the Department of Revenue can request them at any time, and incomplete documentation may result in a denied or reduced credit. These records should be retained for the full credit duration, as claims may span up to 20 years.
How are bonuses withheld in Alabama?
Employers may use supplemental methods; totals reconcile on your annual return. Model as supplemental in the calculator.
Any millionaire or surcharge thresholds?
If applicable, they’re reflected in the Alabama bracket table and notes.
What happens if I start making payments late in the year?
If you begin making estimated payments after the first quarter, Alabama allows you to adjust the remaining payments. For example, if you start after April 1, divide the annual amount by three instead of four. The latest possible estimated payment date is January 15 of the following year for income earned in the current year.
Important Notes
All calculations are estimates for guidance only. Always review your return and consider professional advice when submitting official filings.