how to complete federal income not taxed by alabama for severance

To report severance pay in TurboTax and ensure it is correctly exempted from Alabama state tax (up to $50,000) if you have a certified downsizing letter follow these steps:

1. Verify W-2 Information:
   1. Ensure your W-2 form reflects the exempt severance pay correctly:
      • Box 14 (Other) should show the exempt severance amount.
      • Box 16 (State wages, tips, etc.) should exclude the exempt amount. If it doesn't contact your former employer for a corrected W-2.
2. Enter Severance Pay on Federal Return:
   1. Open TurboTax and start your federal tax return.
   2. Navigate to the "Wages & Income" section.
   3. Enter your W-2 form details, including the severance pay, which should be included in Box 1 (Wages, tips, other compensation).
3. Adjust for Alabama Exemption: Be sure you are logged into TurboTax for link to work
   1. Go to the "State Taxes" section and select Alabama.
   2. Click here  to access "Federal Income Not Taxed by Alabama.
   3. Check the box - I have an Alabama W-2 with severance due to downsizing (must attach state severance exemption letter for proof).
   4. Enter the exempt severance pay amount.
   5. This is only for information as noted in the Step 1. The severance shouldn't have been included in your Alabama wages in Box 16,

Complete Your Returns:

• Finish your federal tax return, including the full severance pay.
• Complete your Alabama state return, ensuring the exempt severance pay is subtracted from your total income.