The Alabama Legislature recently passed HB217 which was signed into law by Governor Ivy. The bill eliminates the 5% tax on overtime pay for a fixed period of time. Lawmakers believe the bill helps hourly workers and also employers by enticing employees to work overtime.

Key Provisions:

• The bill exempts Alabama state tax withholding on overtime from January 2024 through June of 2025 – extension will require a renewal by lawmakers.
• Unlike a previous version of the bill with a cap of $25 million. The cap was eliminated and replaced with the sunset period noted above.
• Employers are required to submit the following to the Department of Revenue by January 31, 2024, on prescribed forms: The total amount received in 2023 by full-time hourly wage-paid employees as compensation for work performed in excess of 40 hours in a week and the total number of employees for which it was paid.
• The Legislative Services Agency estimated the bill will cost the Education Trust Fund $34 million for fiscal 2024.

Now begins the task of implementation. Payroll software will require revisions to accommodate the new law. The Department of Revenue will also need to develop forms for employers to report the required information.

Click HERE for a copy of HB 217 and scroll down to page 4.

Please contact your Dent Moses advisor if you have questions.