Alabama's overtime tax exemption "has been a game-changer for the state's frontline workers," according to The HR Digest.
House Bill 217 by House Minority Leader Anthony Daniels (D-Huntsville) 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 has a sunset date of June 30, 2025. The legislature would have to approve extending the program before the current legislative session ends for the tax exemption to continue beyond that date. Most income in Alabama is subject to a 5% state income tax rate.
Some Republicans have complained about the exemption having a higher cost to the state's budget than initial estimates, but Daniels has argued the state is actually seeing increased revenue from higher economic activity from the overtime tax exemption.
According to The HR Digest, Alabama was the first state to pass a state tax exemption on overtime pay.
Alabama's "pioneering move" has already shown a 5% increase in overtime volunteered, according to the outlet.
"I've picked up extra shifts without losing a massive chunk to taxes," mobile nurse Tammy Gaines told the outlet. "It's a 1,000 more a year for my family."
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