Live in South Dakota, Work Remotely for a Alabama Employer: Who Taxes You?
Answer
Your employer's state gets nothing, and neither does yours. Wages are sourced to where the work is physically done — South Dakota, which does not tax them — and Alabama does not run a rule that would source your remote days back to it. No withholding, no returns.
Last verified
An employer's address is not a tax nexus for its employees. Working from South Dakota keeps the income South Dakota-source, and since South Dakota levies no tax on wages, the income lands nowhere at all.
Alabama also has a layer below the state one, and it is the layer that survives every agreement: Several Alabama municipalities levy an occupational licence fee on wages earned inside the city — Birmingham is the largest. It is collected by the city, not the Department of Revenue, and no state agreement or credit covers it.
What you file
There is nothing to file in either South Dakota or Alabama on these wages. Your federal return is unaffected — the federal government taxes the income whatever the states do.
The two states, side by side
| South Dakota | Alabama | |
|---|---|---|
| Taxes wages | No | Yes — graduated |
| Reciprocity partners | None | None |
| Convenience rule | No | No |
| Nonresident return | Not applicable | Form 40NR |
| Credit for other-state tax | No income tax | Schedule CR |
| Nonresident safe harbour | Not applicable | None published |
| Local income tax | No | Yes |
| Revenue department | South Dakota Department of Revenue | Alabama Department of Revenue |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Alabama and working in South Dakota 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: South Dakota → AlabamaWork state only
- 1099 contractor: South Dakota → AlabamaClient state only, if you work there
- Moved mid-year: South Dakota → AlabamaOne part-year return — the state you moved to
Other South Dakota pairs
Questions people actually ask
I live in South Dakota and work remotely for a Alabama employer. Which state do I pay?
Your employer's state gets nothing, and neither does yours. Wages are sourced to where the work is physically done — South Dakota, which does not tax them — and Alabama does not run a rule that would source your remote days back to it. No withholding, no returns.
Which state should my employer be withholding for?
Neither. There is no state income tax to withhold on either side of this pairing, so a state line on your pay stub for South Dakota or Alabama is an error worth querying.
Does my Alabama employer's location alone create a Alabama tax obligation?
No. Alabama 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 Alabama are a different matter — those are Alabama-source income and can require a nonresident return.
How current is this?
The South Dakota and Alabama rules on this page were last checked against South Dakota Department of Revenue and Alabama 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.
- South Dakota Department of Revenue — individual income taxaccessed 2026-08-07
- Alabama Department of Revenue — individual income taxaccessed 2026-08-07