MONTGOMERY — Legislation exempting the overtime pay of Alabama hourly workers from state income taxes was amended by Gov. Kay Ivey on Tuesday.

House Bill 217 (HB217) by House Minority Leader Anthony Daniels (D-Huntsville) would eliminate 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."

Ivey removed an amendment to the legislation that capped the program at $25 million annually. She also moved up the program's sunset date to June 30, 2025, instead of Jan. 1, 2027. The legislature would have to approve extending the program before June 30, 2025, for the program to continue.

Both the House and Senate passed House Bill 217 with Ivey's executive amendment on Tuesday.

"I received House Bill 217, concerning the exemption of overtime pay from income taxes, and believe that the bill should be amended in two key respects," Ivey said in a letter to lawmakers explaining her executive amendment on Tuesday. "First, the bill should be amended to eliminate the $25 million annual cap on the overall amount of taxes that the State's workers can avoid paying under the proposed new overtime-pay exemption. Second, the bill should be amended to include an earlier sunset date and to require reporting of the total, weekly overtime wages paid by an employer and the total number of employees for which those wages were paid."

Ivey added, "Eliminating the $25 million annual cap will make the bill easier to administer for employers and potentially put more money in the pockets of the overtime wage earners this bill seeks to benefit... At the same time, the earlier sunset date and reporting requirements will better enable the Legislature to monitor the fiscal impact of the overtime-pay exemption on the State's Education Trust Fund."

The overtime tax exemption for hourly workers will begin on Jan. 1, 2024.

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