On June 8, 2023, Alabama Governor Kay Ivey signed House Bill 217 into law, exempting full-time hourly employees from paying state income tax on wages earned for work beyond 40 hours per week from January 1, 2024, through June 30, 2025.
Effective October 1, 2024, the following amendments to the Alabama overtime pay exemption take effect:
- The overtime pay exemption (which currently exempts from gross income and Alabama state income tax compensation for hours worked above 40 in any week if it is received by a worker for tax years that begin on or after December 31, 2023, and before June 30, 2025) ends and instead applies to amounts paid as overtime per the federal Fair Labor Standards Act (FLSA) if the compensation is received for tax years beginning on or after October 1, 2024 through June 30, 2025.
- For employers governed by the federal National Railway Labor Act, the exemption applies to hourly component overtime compensation as defined in applicable collective bargaining agreements.
- From January 1, 2024 through September 30, 2024, employers must report the total amount of overtime pay received by employees paid a full-time hourly wage; however, as of October 1, 2024, employers must report the total amount of all wages paid to such employees.
Employers in Alabama should ensure that their payroll processes have been adjusted to reflect the tax exemption.
