Alabama’s policy on taxing overtime pay changed January 1st.

Starting on Monday, all full-time hourly workers in the state pay no state income tax on overtime pay – or pay they receive for working more than 40 hours in a week.  Previously, workers paid 5% state taxes on any overtime work.  According to the Alabama Policy Institute – Alabama is NOW the only U.S. state to repeal the income tax on overtime pay.  For an employee earning $15 an hour who works five overtime hours per week, the bi-weekly pay would increase by $111 OR about $2,900 in additional annual income.

The new law comes with changes in reporting requirements as well.

According to the Alabama Department of Revenue, all employers will no longer be required to report individual overtime figures but will provide the aggregate amount of overtime paid – and total number of employees who received it, on a monthly or quarterly basis.  The tax exemption is set to expire in June 2025 but could be extended by lawmakers.

(www.AL.COM)