Alabama · LLC tax election
Alabama LLC: S corp or C corp?
Alabama's twist is a business privilege tax that sits on top of income tax, whichever way you elect.
See Alabama at a glanceShort answer
Alabama recognizes your federal S election and has no separate state form, but it still charges its business privilege tax, S corp or not. A C corp pays 6.5% of net income after deducting federal tax paid. For a small LLC the S election mostly changes payroll tax, not Alabama's entity bill.
Last checked .Alabama at a glance
| Question | Alabama |
|---|---|
| S election recognized? | Yes, Alabama follows the federal election1 |
| Separate state form and deadline | No separate state form2 |
| Tax the S corp itself pays | None at the entity level3 |
| C corp rate and minimum | 6.5% flat4 |
| Entity tax on a default LLC | An Alabama LLC, including a disregarded one, owes the business privilege tax unless the amount is $100 or less.5 |
| Personal income tax | Yes, on wages and pass-through income6 |
What is different about Alabama?
Alabama makes you think about two taxes, not one. The first is income tax: the Department of Revenue recognizes your federal S election, and S corporations file Form 20S. C corporations pay 6.5% of net income, but they can deduct federal income tax paid or accrued first, which is a quirk most states do not share. The second is the business privilege tax. Every corporation, limited liability entity and disregarded entity doing business in Alabama owes it, and S corps and pass-through LLCs file Form PPT. A tax of $100 or less is fully exempt, so tiny businesses often owe nothing. An S election does not get you out of it.
Does Alabama recognize a federal S corp election?
Alabama recognizes the federal S election. Use Form 20S, which carries a copy of the federal return; there is no separate Alabama election form. Income passes through to you and is taxed on your personal Alabama return at 2%, 4% and 5%. The S corporation still files Form PPT for the business privilege tax. If the tax is $100 or less you are exempt and do not have to file. Alabama also offers an Electing Pass-Through Entity option for entity-level tax.
Does my LLC need a separate Alabama election or form?
Alabama has no separate S election form; the S corp files Form 20S with a copy of its federal return.2
What does Alabama tax an S corp or LLC at the entity level?
- An Alabama S corporation's entity-level cost is the business privilege tax, filed on Form PPT; tax of $100 or less is fully exempt.3
- An Alabama LLC, including a disregarded one, owes the business privilege tax unless the amount is $100 or less.5
- Every corporation, limited liability entity and disregarded entity doing business in Alabama owes the business privilege tax; C corps file Form CPT and S corps and pass-through LLCs file Form PPT.7
Is a Alabama LLC taxed as a C corp ever better?
An Alabama C corporation pays 6.5% of annual net income, and it may deduct federal income tax paid or accrued before computing that tax. It also owes the business privilege tax, filed on Form CPT. Profit paid to you as a dividend is taxed again on your personal return at up to 5%. The federal-tax deduction softens the corporate layer, but it does not remove the second layer on dividends.
Run your Alabama numbers
In Alabama an S election pays off when your profit is high enough that avoiding 6.5% corporate tax and some payroll tax on distributions outweighs the cost of running payroll. Alabama's business privilege tax applies either way, and tax of $100 or less is exempt, so it rarely decides the question.
Result
How much would a Alabama LLC owner save as an S corp?
| Taxed as | At $80,000 profit | At $150,000 profit |
|---|---|---|
| Default LLC | $11,304self-employment tax $11,304 + Alabama LLC tax $0 | $21,194self-employment tax $21,194 + Alabama LLC tax $0 |
| S corp | $9,344payroll tax $7,344 + Alabama S corp tax $0 + $2,000 payroll and prep | $15,770payroll tax $13,770 + Alabama S corp tax $0 + $2,000 payroll and prep |
| C corp | $17,707payroll tax $7,344 + Alabama tax $2,080 + federal $6,283 + $2,000 payroll and prep | $31,451payroll tax $13,770 + Alabama tax $3,900 + federal $11,781 + $2,000 payroll and prep |
Assumes a 60% salary9 and a single filer. Income tax is left out. C corp dividends are taxed again.
When is the Form 2553 deadline for a Alabama LLC, and what if I miss it?
Late relief: federal steps, deadline guide.
What to do next
How to start one, or have us form it from $123.75.
Registered agent $74.25/yr, annual report.
LLC vs S corp guide, election deadline, Form 2553 filed for $165.
More on Alabama: How to start a Alabama LLC · How to start a Alabama corporation · Alabama LLC cost · Alabama annual report · Annual report late fees by state
File the S-Corp Election for your Alabama LLC
We file Form 2553 for a flat $165.
Get the S-Corp ElectionCommon questions
Does Alabama recognize S corporation status?
Yes. The Alabama Department of Revenue says to use Form 20S. There is no separate Alabama election; your federal S election is recognized.
What is the Alabama corporate income tax rate?
6.5% of annual net income, with a deduction for federal income tax paid or accrued. The rate was set by Amendment 662 to the Alabama Constitution.
What is the Alabama business privilege tax?
It is a tax on the privilege of being organized or doing business in Alabama. Every corporation, limited liability entity and disregarded entity owes it. S corps and pass-through LLCs file Form PPT; C corps file Form CPT.
Do I have to file the Alabama business privilege tax return if I owe $100 or less?
No. For taxable years beginning after December 31, 2023, tax of $100 or less is fully exempt, and taxpayers whose tax calculates to $100 or less do not need to file the return.
What are Alabama's individual income tax rates?
2% on the first $500, 4% on the next $2,500 and 5% above $3,000 for single filers.
Sources 10 links, checked Nov 6, 2026
- Alabama recognizes the federal S election; S corporations file Alabama Form 20S. revenue.alabama.gov, checked Nov 6, 2026
- Alabama has no separate S election form; the S corp files Form 20S with a copy of its federal return. revenue.alabama.gov, checked Nov 6, 2026
- An Alabama S corporation's entity-level cost is the business privilege tax, filed on Form PPT; tax of $100 or less is fully exempt. revenue.alabama.gov, checked Nov 6, 2026
- An Alabama C corporation pays 6.5% of annual net income, with a deduction for federal income tax paid or accrued. revenue.alabama.gov, checked Nov 6, 2026
- An Alabama LLC, including a disregarded one, owes the business privilege tax unless the amount is $100 or less. revenue.alabama.gov, checked Nov 6, 2026
- Alabama taxes individual income at 2%, 4% and 5% on graduated brackets. revenue.alabama.gov, checked Nov 6, 2026
- Every corporation, limited liability entity and disregarded entity doing business in Alabama owes the business privilege tax; C corps file Form CPT and S corps and pass-through LLCs file Form PPT. revenue.alabama.gov, checked Nov 6, 2026
- IRS: Form 1120 instructions, C corp rate irs.gov, checked Nov 6, 2026
- IRS: S corp reasonable compensation irs.gov, checked Nov 6, 2026
- IRS: Form 2553 instructions irs.gov, checked Nov 6, 2026
Last verified Nov 6, 2026.
This page explains the rules; it is not tax advice. Run your numbers with a CPA or enrolled agent before you elect.
Last verified Nov 6, 2026.