Hourly workers in Alabama will get hit with a tax increase on their overtime earnings starting on Monday.
House Bill 217 by House Minority Leader Anthony Daniels (D-Huntsville) temporarily eliminated state income taxes on all overtime pay for Alabama hourly workers by excluding overtime, or any hours worked above 40 hours per week, from the state definition of gross pay. The legislation was passed with broad Republican and Democrat support during the 2023 session.
However, the law had a sunset date of June 30, 2025. The legislature didn’t pass a bill extending the tax exemption before the 2025 session ended for the tax exemption to continue beyond that date. Most income in Alabama is subject to a 5% state income tax rate.
“The Alabama state income tax exemption applicable to overtime wages ends on June 30, 2025. After this date, any amounts paid/received as overtime compensation are subject to income tax,” a spokesperson for the Alabama Department of Revenue said in a statement. "The requirement to report overtime wage data to the Alabama Department of Revenue also ends once the final exempt overtime wages are reported on the employer’s monthly or quarterly withholding tax filing."
The Alabama House Democratic Caucus blamed Alabama’s Republican supermajority in the Legislature for letting the exemption expire.
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