Alabama Hourly Heroes Overtime Wages Now Tax-Free: Starting from January 1, 2024, hourly workers in Alabama will no longer be subject to state income taxes on overtime wages. The change, initiated by Alabama House Minority Leader Anthony Daniels and signed into law by Governor Kay Ivey in June (HB217), exempts hourly workers from the state’s five percent income tax rate on earnings beyond 40 hours per week. This adjustment is perceived as a de facto five percent pay increase for overtime work.
The ceremonial signing of the bill took place at Montgomery’s Hyundai auto plant on November 9, highlighting its significance for the local workforce. Daniels emphasized that the elimination of state tax on overtime is a positive outcome for hardworking Alabamians, providing them with more take-home pay for their additional efforts. The change is also seen as a benefit for employers facing workforce shortages, as it incentivizes current employees willing to work overtime to cover shifts.
According to Daniels, Jackson County, with its substantial number of hourly workers, will experience a significant impact on businesses and their employees. He anticipates the bill will aid businesses struggling with labor shortages by encouraging employees to work overtime, ultimately benefiting local economies.
Sen. Steve Livingston emphasized that the Alabama Overtime Act received bipartisan support, allowing those willing to work overtime to do so without financial penalties and potentially increasing workforce participation. Rep. Mike Kirkland expressed his support for the bill, highlighting its direct impact on Alabamians.
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The bill, enjoying unanimous support in the last legislative session, reflects bipartisan efforts in Montgomery to support working families and family-owned businesses throughout the state. Daniels expressed gratitude for this bipartisan support and indicated ongoing efforts to implement pro-growth policies in the upcoming legislative session to further enhance workforce participation and stimulate economic growth.
Our Reader’s Queries
Is overtime tax free in Alabama?
Alabama has passed a new law exempting overtime compensation from state income tax. This law applies to income earned from January 1, 2024, to June 29, 2025.
Is Alabama going to stop taxing overtime?
Starting January 1, 2024, hourly workers in Alabama won’t have to shell out state income tax on their overtime earnings. This means an automatic 5% boost in their take-home pay, as that’s the current state income tax rate. However, their employers will now need to handle additional administrative and reporting duties due to this new law.
What are the new overtime rules for Alabama 2023?
Starting on January 1, 2024, full-time hourly workers in Alabama won’t have to pay state income tax on any overtime pay they earn for working more than 40 hours a week. Employers will also have some new reporting duties to the Alabama Department of Revenue as part of this change.
Do you not pay taxes on overtime?
Extra hours worked results in additional taxes as the IRS views it as part of the employee’s overall income. While there isn’t a separate tax for overtime, federal income and FICA taxes still need to be deducted from the extra wages earned.