Alabama’s policy on taxing overtime pay changed Jan. 1.
Starting Monday, 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, bi-weekly pay would increase by $111 or about $2,900 in additional annual income, API estimates.