House Minority Leader Anthony Daniels (D-Huntsville) will file a bill in the 2025 session to make a temporary state income tax exemption on overtime pay passed in 2023 permanent.
House Bill 217 by Daniels 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.
The law went into effect on January 1, 2024 with a sunset date of June 30, 2025. The legislature would have to approve extending the program before June 30, 2025, for the tax exemption to continue beyond that date. Most income in Alabama is subject to a 5% state income tax rate.
Estimates have varied over how much of a hit state revenue is taking from the new exemption. The Washington, D.C.-based Tax Foundation argued in a recent blog post that lawmakers should let the exemption expire next year.
Daniels said he planned on filing legislation to make the overtime tax exemption in Alabama permanent next session.
“There’s some folks that want it to sunset, but we’re going to push it. I really want to extend it in general,” Daniels told 1819 News on Monday. “I think that there’s some dynamic testing that needs to be done, kind of having some research done to show kind of the money that’s coming in. (Showing) that there’s additional money that folks are making and what that means for local, county, and state tax revenue and, you know, just being able to track some of that so they can see that it’s really bringing money back in in many different ways than meets the eye and they’re not tracking any of that.”
Daniels said employers and employees have been “excited” about the overtime income tax exemption since it was implemented.
“They have additional money to be able to spend for them and their families and it’s worth working overtime now. We’ve also seen an increase in workforce participation. This could potentially be part of the reason. I’ve not heard an argument that’s solid enough for me to not want it to be permanent,” he continued. “From an inflationary standpoint, families need more money in their pocket to be able to keep up with what’s going on. So we’re not in a position to justify not making it permanent. I just haven’t heard any valid arguments besides, ‘Oh, it costs more.’ Think about a manufacturer that’s producing some product. Well, if they don’t have folks working those additional hours and they can’t find enough employees to work then that’s going to slow down the supply so it’s going to create an even bigger problem. So what do you do in the interim? You have to do things innovatively and outside the box and do things like this so that you’re able to produce at the same rate as if you had 20-30 more employees. Who doesn’t want to reward hard work? I don’t know anybody that doesn’t. If cost is the argument, then let’s look at a lot of other things that we’re spending money on that’s not yielding any returns, any ROI.”
To connect with the author of this story or to comment, email caleb.taylor@1819News.com.
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