BY BRUCE BRANUM
The Greenville Standard
The Alabama Department of Revenue (ALDOR) recently published guidance on their website for reporting overtime pay that will be exempt from income tax for the upcoming tax year, along with some frequently asked questions and other relevant information.
For the tax year beginning on or after Jan. 1, 2024, overtime pay received by a full-time hourly wage paid employee for hours worked above 40 in any given week are excluded from gross income and therefore exempt from Alabama’s 5% state income tax.
The exemption would apply to all full-time hourly workers in the public and private sectors and includes a “sunset” provision, meaning it will expire in January 2027 unless the Legislature extends it.
There is an annual cap of $25 million on the total amount of exemptions that can be claimed statewide per year. ALDOR shall adopt rules to enforce the cap
Tied with this exemption are employer reporting requirements to ALDOR. Employers are required to report the total aggregate amount of overtime paid and the total number employees who received overtime pay.
To learn more about who must report and how, what qualifies as exempt, and other details, visit: https://www.revenue.alabama.gov/individual-corporate/overtime-exemption/.