Live in Alabama, Work Remotely for a Indiana Employer: Who Taxes You?
Answer
Your home state takes it and the work state does not. Indiana levies no tax on wages; Alabama taxes residents on all income regardless of where it was earned. The result is a single Alabama resident return covering the full amount, with no offsetting credit.
Last verified
The instinct that working in a no-tax state means paying no tax is the single most expensive misunderstanding in this niche. Indiana takes nothing, but Alabama still taxes residents on income earned anywhere, so the full amount lands on your Alabama return.
Indiana also has a layer below the state one, and it is the layer that survives every agreement: Every Indiana county levies its own income tax, and the reciprocal agreements do not cover it. A resident of a reciprocal state who works in Indiana still pays Indiana county tax on those wages.
What you file
- 1Resident return · Alabama
File a Alabama resident return reporting all of your income.
The two states, side by side
| Alabama | Indiana | |
|---|---|---|
| Taxes wages | Yes — graduated | Yes — flat |
| Reciprocity partners | None | 5 (Form WH-47) |
| Convenience rule | No | No |
| Nonresident return | Form 40NR | Form IT-40PNR |
| Credit for other-state tax | Schedule CR | Schedule 6 (Form IT-40PNR) |
| Nonresident safe harbour | None published | None published |
| Local income tax | Yes | Yes |
| Revenue department | Alabama Department of Revenue | Indiana Department of Revenue |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Indiana and working in Alabama gives:Home state only.
Same two states, different situation
The withholding answer turns on how you are paid and where the work happens, not only on which two states are involved.
- W-2 commuter: Alabama → IndianaBoth states — credit offsets the double tax
- 1099 contractor: Alabama → IndianaHome state, plus the client state if you work there
- Moved mid-year: Alabama → IndianaTwo part-year returns
Other Alabama pairs
Questions people actually ask
I live in Alabama and work remotely for a Indiana employer. Which state do I pay?
Your home state takes it and the work state does not. Indiana levies no tax on wages; Alabama taxes residents on all income regardless of where it was earned. The result is a single Alabama resident return covering the full amount, with no offsetting credit.
Which state should my employer be withholding for?
Alabama. Your employer should withhold Alabama tax rather than Indiana tax on these wages. If a Indiana line is showing on your pay stub, raise it with payroll now rather than at filing time.
Does my Indiana employer's location alone create a Indiana tax obligation?
No. Indiana sources wages to the place where the work is physically performed, and it does not apply a convenience-of-the-employer rule that would override that. Days you actually spend working inside Indiana are a different matter — those are Indiana-source income and can require a nonresident return.
How current is this?
The Alabama and Indiana rules on this page were last checked against Alabama Department of Revenue and Indiana Department of Revenue on 2026-08-07. We re-check the full grid every December after state legislative sessions close, and re-check the convenience-of-the-employer states quarterly because that is where the rules move fastest.
Sources
Every fact above comes from the revenue department that publishes the rule. We do not cite secondary summaries, and we do not restate a figure we could not find at source.
- Alabama Department of Revenue — individual income taxaccessed 2026-08-07
- Indiana Department of Revenue — individual income taxaccessed 2026-08-07