Alabama Income Tax Exemption for Overtime Pay Set to Expire - HR ALERTS

Alabama Income Tax Exemption for Overtime Pay Set to Expire

Effective: June 30, 2025

Alabama’s state income tax exemption for overtime pay is approaching its expiration. Here’s what employers need to know:

Current exemption (through June 30, 2025):

Compensation for hours worked above 40 per week is exempt from Alabama gross income and state income tax if paid for tax years beginning on or after December 31, 2023, and before June 30, 2025.

Transition period (effective October 1, 2024):

Starting October 1, 2024, the exemption applies only to overtime pay that meets the definition under the federal Fair Labor Standards Act (FLSA) and is received for tax years beginning on or after October 1, 2024, through June 30, 2025.

View the legislation: 2024 AL H.B. 407  

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