NO STATE INCOME TAX on Overtime Pay in Alabama Starting January 1st

Beginning January 1st full-time hourly workers in Alabama will pay NO STATE INCOME TAX on overtime pay which is defined as pay for work in excess of 40 hours in a week.

State Officials gathered at the Hyundai Plant in Montgomery on Thursday to commemorate the new law – which is the result of a bill which was sponsored by:  Alabama House Minority Leader Anthony Daniels of Huntsville.  In effect, the new law means a 5% raise on pay for work over 40 hours a week for full-time hourly employees, because that’s the rate of the state income tax.

Daniels originated the idea – with support from the Republican majority and it passed without a dissenting vote in June.  It was signed back in June by Governor Kay Ivey, and she also signed it ceremonially during Thursday’s news conference.

State Income Tax Revenues support the education budget.  That fiscal note attached to the bill estimates it will reduce revenues by $45 million a year.  But Daniels said that would be offset – at least in part, by the people spending that extra money they take home.  That spending will help fill tax coffers on local, and state levels, Daniels said.  Daniels also said the bill would benefit businesses by providing an incentive for more productivity.

The law says that the tax exemption will expire in June of 2025.  However lawmakers could remove the expiration and allow the exemption to continue.  Daniels said he is confident lawmakers will extend the exemption because it will be so popular.

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