If you serve in the Alabama National Guard, a new state law will soon stop taxing the first $5,000 of your drill pay. Governor Kay Ivey signed HB 341 on April 17, 2026, and at Alabama's 5 percent top income tax rate the exemption is worth up to about $250 back every year. There is one thing you need to understand before anything else, though. This benefit has not started yet.
When this actually starts. The exemption applies to drill pay earned on or after January 1, 2027. It does NOT apply to your 2026 income, so there is nothing to claim on the Alabama return you file in early 2027. The first return it can ever appear on is your 2027 return, filed in early 2028. It also sunsets after the 2029 calendar year unless the Legislature extends it. Do not let a tax preparer, or tax software, exempt your 2026 drill pay under this law.
What it is
HB 341, signed as part of a package of military bills in April 2026, excludes the first $5,000 of income an Alabama National Guard member receives for inactive duty training from Alabama state income tax. Inactive duty training, or IDT, is the formal name for your regular drill weekends. The change is written into Section 40-18-19 of the Code of Alabama, the section that lists income exempt from state income tax. The enrolled act adds a new subdivision (a)(14) reading, in full: "Beginning January 1, 2027 through December 31, 2029, the first five thousand dollars ($5,000) of income received by a member of the Alabama National Guard as payment for inactive duty training (IDT) as described in 37 U.S.C. § 206."
Two boundaries matter. First, the exemption covers drill (IDT) pay specifically, and the federal cross-reference is what fences it in. 37 U.S.C. § 206 is the section that pays reserve component members for inactive-duty training. Annual training is not paid under that section; it is active duty pay under 37 U.S.C. § 204. So on the face of the act, your two-week AT paycheck is outside this exemption and your drill weekends are inside it. If your pay mix is unusual, confirm the treatment with the Department of Revenue when it publishes guidance. Second, it is capped. If you earn more than $5,000 in drill pay in a year, everything above that first $5,000 is still taxed normally.
Alabama joins a group of states that already shield Guard drill pay from state tax. Lawmakers cited seven of them, including South Carolina, Oklahoma, and Pennsylvania, when the bill moved through committee.
What it's worth
The math is simple. Alabama's top income tax rate is 5 percent, and it kicks in at a low income threshold, so most working Guard members pay it on their last dollars earned.
$5,000 of exempt drill pay x 5 percent = about $250 per year in state tax you stop paying.
If your total drill pay for the year is under $5,000, your savings are 5 percent of whatever you actually earned at drill. Either way this arrives as a smaller Alabama tax bill (or bigger refund) starting with the 2027 tax year.
The state's own fiscal note gives a sense of scale: the exemption is projected to cost Alabama $1.9 million in Fiscal Year 2027 and about $2.6 million a year after that. That money stays in Guard members' pockets.
Who qualifies (and who doesn't)
- Members of the Alabama National Guard (Army or Air) who earn inactive duty training pay. You serve in the Alabama Guard specifically; the law is a state benefit for the state's own force.
- Alabama residents who file an Alabama income tax return. The exemption reduces Alabama taxable income, so it only helps if you owe Alabama income tax in the first place.
Who does not qualify: members of other states' National Guards who live in Alabama, federal Reservists (Army Reserve, Air Force Reserve, Navy Reserve, and so on, who are not part of the Alabama National Guard), Veterans no longer serving, and active duty members, since the exemption is tied to Guard IDT pay. And again, nobody qualifies for tax year 2026. The benefit begins January 1, 2027.
How to claim it
There is nothing to file yet. Here is the realistic sequence:
- Through the end of 2026, do nothing. Your 2026 drill pay is fully taxable to Alabama. File your early-2027 return as normal.
- Starting January 2027, the exemption accrues automatically on drill pay you earn. Keep your Leave and Earnings Statements; they document which pay was IDT pay.
- In early 2028, claim it on your 2027 Alabama return. The Alabama Department of Revenue will publish instructions and forms for the new exemption before then. Confirm the exact line and any documentation requirements at revenue.alabama.gov or with your tax preparer, and make sure your software has picked up the change.
Deadlines
- January 1, 2027: the exemption takes effect for drill pay earned on or after this date.
- December 31, 2029: the exemption sunsets after the 2029 calendar year unless the Legislature approves an extension. As written, tax years 2027, 2028, and 2029 are the window.
Related benefits
Alabama stacks other benefits on Guard and Veteran status while you wait for this one:
- If you also draw military retired pay, Alabama already exempts 100 percent of it from state income tax, a benefit that is live today with no sunset.
- SCRA and MLA protections apply to Guard members on qualifying orders, capping interest rates and blocking some fees.
- The first 90 days after separation is our checklist if you are leaving the Guard or coming off active duty.
- Run the state benefits calculator to see what Alabama owes you at your rating and status today.
What to do next
For now, the action item is simply to know this is coming, budget for roughly $250 a year starting with your 2027 taxes, and make sure nobody claims it early on your 2026 return.
Alabama has dozens of other Veteran and Guard benefits that are live right now. Check the state benefits calculator, or start your free benefits scan and we will check you against over 4,000 federal and state benefits, each with a dollar value and an official source.