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MONTGOMERY, Ala. (WIAT) — Starting Monday, Alabama is no longer taxing overtime pay for full-time hourly workers.
Any hours worked over 40 are now excluded from gross income and are no longer subject to the state’s 5% tax.
House Minority Leader Anthony Daniels sponsored the bill last legislative session. He said it’s effectively a 5% raise for employees. The bill passed unanimously in both houses.
“It’s putting more money in your pocket. It’s your money, and you deserve to take it home,” Daniels said.
Daniels said he filed the bill in response to rising costs. He said it will help Alabamians with inflation, and it could also help the state’s labor force participation rate.
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“Five percent of time-and-a-half is a lot more than 5% of base pay. So, it gives workers an opportunity to take home more money so they can afford those eggs and those prescription drugs,” Daniels said.
The law expires in June of 2025 if lawmakers don’t reauthorize it.
Daniels said he’s confident the legislature will do that, as 2026 is an election year for state lawmakers.
“It was a very strategic placement in the legislation. Because in 18 months, all these House and Senate members will be filing their paperwork to run for reelection, and so I don’t know anyone that’s running for reelection in a reelection year that doesn’t want to make certain this legislation continues on,” Daniels said.
The tax cut will have an estimated $45 million impact annually on the Education Budget. Daniels has said he expects people may spend that extra money elsewhere though, so the revenue hit may not actually be that high.
