Alabama DOR Issues Much-Needed Guidance to Employers with Remote/Traveling Workers

The Alabama Department of Revenue (“ALDOR”) issued helpful guidance on income tax withholding for compensation paid to nonresident employees, a/k/a remote workers, and to traveling employees. Most importantly, the August 25, 2026 Notice (“Notice”) to employers clarified the ALDOR’s  position on when an Alabama-based employer has a withholding obligation on wages or salary paid to an employee who resides and works entirely in another state. The Notice explicitly states that an employer “should withhold Alabama income tax from wages paid to a nonresident employee only to the extent the wages are attributable to services physically performed in Alabama. If a nonresident employee performs no services in Alabama during the year, Alabama income tax withholding is not required solely because the employer is located in Alabama” [emphasis ours].

Consistent with that statement, the ALDOR confirmed it will not follow the Alabama Tax Tribunal’s controversial 2023 ruling in Bollinger v. State of Alabama Department of Revenue, which judicially created a convenience of the employer rule.

The Notice also points out several overriding federal statutory exceptions (e.g., maritime, railroad and aviation workers) as well as the state’s new 30-day safe harbor rule exempting Alabama earnings from income tax for certain out-of-state workers performing services in the state for 30 or fewer days in a calendar year. The 2025 legislation, patterned after the Council On State Taxation (COST)/AICPA model, became effective January 1, 2026. State Rep. Danny Garrett, Chair of the House Ways & Means-Education Committee, led the effort to pass that bill last year and urged the ALDOR to work with the business community and tax practitioners to clarify that Alabama is not a “convenience of the employer state.” ALDOR officials confirmed that during their panel presentation at the annual COST Southeast Region State Tax Conference on August 26 in Birmingham.

Bradley partner and SALT practice team member Bruce Ely assisted the Alabama Society of CPAs and COST in working with the ALDOR toward finalizing the Notice and in helping the parties promptly notify the news media and various stakeholders of the good news. In addition to Chairman Garrett and the leadership at the ASCPA and COST, thanks go to Alabama Commissioner of Revenue Mary Martin Mitchell, Heather Lowe, Director of Tax Policy and Governmental Affairs , and their staff.

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Upcoming ASPCA Webinar: Register for Changing Residency and Remote Worker Payroll Tax Issues | ASCPA on September 16 at 10 a.m. CDT (1 CPE credit available), led by Bruce Ely and Jimmy Long. They will highlight, among other recent developments, the ALDOR Notice to Employers of Remote Workers mentioned above. Please contact Marie Harrington, director of Professional Education for the Alabama Society of CPAs, if you have any questions or issues registering for the webinar (334-386-5752).