Gambling winnings tax in Alabama

Alabama allows gambling losses only as an itemized deduction on the state return, whether or not you itemize federally. Take its standard deduction and it taxes your gross winnings. Whether only 90 percent of your losses count from 2026 is not settled.

Checked against Alabama’s own sources on 2026-09-25.

In short

When a win raises your federal tax, the larger deduction for federal income tax lowers the income Alabama taxes, because Alabama lets you deduct your federal income tax.8
A win can even lower your Alabama tax, if it raises your federal tax by more than it raises your Alabama income. This happens most in a losing year.
If you itemize in Alabama, the 2 percent floor on other miscellaneous deductions does not apply to your gambling losses. Alabama puts no dollar cap and no overall phase-out on your itemized deductions.2
If another state taxes your winnings, you claim an Alabama credit for it on Schedule CR.9

How Alabama treats gambling losses

Alabama does not tie the deduction to your federal itemizing choice. You can itemize on the Alabama return even if you take the federal standard deduction, but the losses count only if you do, in place of Alabama's standard deduction.

The two examples below are the same numbers the calculator uses, worked at Alabama rates.

Two examples, worked at 2026 Alabama rates

A single filer with $60,000 of other income who takes the standard deduction on everything except gambling losses.

A losing year

You win $50,000 and lose $52,000, so you finish down $2,000.

Federal: $3,596
Alabama: $105
Total: $3,701

You finished the year down and still owe tax.

Federally you itemize, so your losses offset your winnings, but the 2026 rule caps that deduction at 90 percent and leaves $3,200 taxable. Alabama lets you deduct gambling losses as an itemized deduction on the state return, whether or not you itemize federally. Your Alabama income, after the larger of the standard deduction and your itemized deductions, and your $1,500 personal exemption, and after the federal income tax it lets you deduct, goes from $50,980 without the win to $53,084 with it. The extra $2,104 is taxed at 5 percent, which comes to $105.

A winning year

You win $50,000 and lose $10,000, so you finish up $40,000.

Federal: $10,350
Alabama: $1,658
Total: $12,008

Federally you take the $16,100 standard deduction, which is worth more than itemizing, so your gambling losses do not reduce your federal tax at all. Alabama lets you deduct gambling losses as an itemized deduction on the state return, whether or not you itemize federally. Your Alabama income, after the larger of the standard deduction and your itemized deductions, and your $1,500 personal exemption, and after the federal income tax it lets you deduct, goes from $50,980 without the win to $84,130 with it. The extra $33,150 is taxed at 5 percent, which comes to $1,658.

Alabama income tax rates, 2026

1, 3, 5

Single filer thresholds. Married filing jointly uses different bands. Married filing separately and head of household use the single bands.

Taxable income	Rate
$0 to $500	2 percent
$500 to $3,000	4 percent
$3,000 and above	5 percent

The calculator also applies what this table leaves out: a personal exemption of $1,500 a person, or $3,000 for head of household, taken before the table and a deduction for the federal income tax, taken before the table.

The federal 90 percent loss limit in Alabama

From tax year 2026 the federal deduction for gambling losses is cut to 90 percent of what you lost, and never more than what you won. Public Law 119-21 did it, at section 70114(a), by rewriting 26 U.S.C. 165(d).

No Alabama statute or guidance addresses the federal 90 percent limit for tax year 2026.

We could not confirm from a primary source how Alabama tracks the federal code. The paragraph above says what this means for the federal 90 percent limit.

Our estimate assumes the limit applies, which gives the higher tax. The calculator also shows the tax if the limit does not apply. We would rather tell you the number could be lower than let you plan around one that turns out to be too low.

If you do not live in Alabama

A nonresident with Alabama source income files Form 40NR. Someone who was both a nonresident and a part-year resident in the same year files both 40NR and 40.

The calculator works the bill for somebody who lives in Alabama. It does not apportion income between states, so a nonresident return is not what the figure above describes.

More about Alabama

The deduction for federal income tax

Alabama lets you deduct your federal income tax. So when a win raises your federal tax, that larger deduction lowers the income Alabama taxes.8

If a win raises your federal tax by more than it raises your Alabama income, the win lowers your Alabama tax. This happens most in a losing year.

The federal tax that Alabama lets you deduct is the tax after nonrefundable credits, plus net investment income tax, less refundable credits such as the earned income credit.8

If you and your spouse file a joint federal return and separate Alabama returns, you split the federal tax by federal adjusted gross income.8

If you itemize

On the Alabama return you deduct gambling losses on Schedule A, up to the amount of your gambling winnings. The 2 percent floor that applies to other miscellaneous deductions does not apply to them.2

Alabama puts no dollar cap and no overall phase-out on your itemized deductions.2

The Alabama standard deduction gets smaller as your income goes up.7

No Alabama page says in so many words whether you must itemize on your federal return to itemize on the Alabama return. The Form 40 booklet does not tie the Alabama choice to the federal one, and Alabama does not start from federal adjusted gross income.

Tax bands on a joint return

On a joint return, the bands are $1,000 at 2 percent, the next $5,000 at 4 percent, and 5 percent above $6,000.3

Local tax

Alabama city occupational license taxes apply to pay for work done in the city. They do not apply to your gambling winnings.

If another state taxes your winnings

If another state taxes your winnings, you claim the Alabama credit on Schedule CR. The worked example in the Alabama booklet is a gambling case. Alabama refigures the other state’s income under Alabama rules before it gives the credit. It accepts a W-2G where the other state does not allow a return for gambling winnings.9

About this estimate

The calculator uses federal tax before any credit. If you have credits, you can owe a different amount, higher or lower.

If you and your spouse file a joint federal return and separate Alabama returns, the calculator does not split the federal tax by federal adjusted gross income. It uses a separate federal return instead.

The calculator takes off your personal exemption: $1,500 single or separate, and $3,000 joint or head of family. It leaves out the exemption for each dependent.

Sources

Every figure above traces to a primary source: a statute, an administrative code, a state agency page, or official form instructions.

1. ALDOR individual income tax rates (checked 2026-10-03)
2. Form 40 booklet (2025), Schedule A miscellaneous deductions and the tax table (checked 2026-09-16)
3. Withholding Tax Tables and Instructions for Employers and Withholding Agents, revised January 2026, page 7 formula line 5 rates and page 8 standard deduction schedule (checked 2026-10-03)
4. Code of Ala. 40-18-19(a)(8), the personal exemption (checked 2026-10-11)
5. Code of Ala. 40-18-5, the rates of tax (checked 2026-10-11)
6. Withholding Tax Tables and Instructions, revised January 2026, formula line 2C personal exemption (checked 2026-10-11)
7. 2025 Form 40 booklet, standard deduction chart by Alabama adjusted gross income (checked 2026-09-25)
8. 2025 Form 40 booklet, federal income tax deduction worksheet (line 12) and the per-dependent exemption chart (line 14) (checked 2026-09-25)
9. 2025 Form 40 booklet, Schedule CR, credit for tax paid to another state, with a gambling example (checked 2026-10-06)

The federal rule, for the parts of this page that rest on it

10. Public Law 119-21 section 70114(a), which rewrote 26 U.S.C. 165(d) on wagering losses from tax year 2026 and sets out its text (checked 2026-10-18)

We could not confirm these from an official source: how the state follows the federal tax code; the date the state follows the federal code to; whether any city or county tax applies; the payout at which withholding starts; the withholding rate.