November 6, 2023 – Effective January 1, 2024, through June 30, 2025, Alabama has enacted a statute to exempt overtime pay received by full-time hourly employees from Alabama state income tax by excluding such wages from gross income.  The exemption is only available for employees paid by the hour who work more than 40 hours in a week; hybrid plans where an employee is salaried nonexempt but can also earn overtime do not qualify for the overtime exemption.  Hourly part time and seasonal employees also qualify for exempt overtime wages on the occasions when they work over 40 hours in a week.

In conjunction with the overtime pay exemption, the Alabama Department of Revenue (“ALDOR”) requires employers to provide two reports to the agency.  First, employers are required to provide historical 2023 overtime data by January 31, 2024, that provides the amount of overtime paid during the 2023 calendar year and the total number of full-time hourly employees who received overtime pay in 2023.  Thereafter, employers are required to report on a monthly or quarterly basis the aggregate amount of overtime paid during the monthly or quarterly period and the total number of full-time hourly employees who received overtime pay.  The forms for these reports are located in your My Alabama Taxes account.  ALDOR proposes that exempt overtime wages for employees be reported in Box 14 of employees’ Form W-2 using “EX OT WAGES” as the indicator: for example, EX OT WAGES- $15,250.

You can find more information about Alabama’s overtime pay exemption from ALDOR here.  If you have any questions about this new law, please feel free to contact the Kullman attorney(s) with whom you work.