MONTGOMERY — While promising some kind of tax relief during the 2025 legislative session, House Speaker Nathanial Ledbetter (R-Rainsville) was uncertain about extending the state's overtime tax exemption, which is slated to expire this year.
Lawmakers passed a law in 2023 ending the state's taxing of money earned via overtime pay. The bill, sponsored by House Minority Leader Anthony Daniels (D-Huntsville), passed the legislature but contained a sunset provision, meaning it would require a legislative continuation or expire. The initial sunset provision expired the tax cut in 2027 and capped the total exemption amount at $25 million. However, Gov. Kay Ivey issued an executive amendment removing the cap but changing the sunset to June 2025.
The total fiscal impact on the state's Education Trust Fund (ETF) was initially reported to be $34 million. However, while the exact impact is not available, a report by the Alabama Department of Revenue said the effect could be as much as $230 million. That number would likely be higher in a full fiscal year, as the bill went into effect in the second quarter of the 2024 fiscal year.
Speculation about continuing the tax cut has been scattered among lawmakers. Some believe it will happen, while others believe the hit to the ETF is too much to handle, especially with state leaders advising caution of declining state revenues.
This week, Ledbetter told reporters that some tax cuts would likely be approved during this session. However, he gave a less-than-optimistic outlook for the continued overtime tax cut.
"There's been a lot of conversation about it," Ledbetter said. "It's been what we can do and what we can't do. Certainly, there will be tax relief; I can just about tell you that now. I don't know what form it's going to look like yet. The thing we thought about with the overtime tax, I think the fiscal note was like $34 million; today, it's more than $230 million. If it goes a full cycle, it would be over half a billion dollars; that's for the full term. I don't know what we're going to do. We're going to look at that and try to make sure that we do it with a conservative effort."
To connect with the author of this story or to comment, email craig.monger@1819news.com.
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