Three new rules will take effect this year that alter the overtime wages subject to Alabama withholding tax and employers' requirements in reporting those newly exempt wages.
On Oct. 31, the Alabama Department of Revenue's Income Tax Administration issued three final rules that take effect Dec. 3 and will cover all tax years beginning after Dec. 31, 2023, and ending prior to June 30, 2025. Notably, the entirety of overtime wages paid to full-time hourly employees will be excluded from Alabama withholding tax.
In Ala. Admin. Code r. 810-3-72-.01, the Department of Revenue amended the current rule by removing language that required employees who performed a mix of exempt and nonexempt work to have either all or none of their earnings taxed. The amended rule adds language excluding the entirety of overtime wages paid to full-time hourly employees from Alabama withholding tax and covers tax periods from Jan. 1, 2024, through June 30, 2025. The amended rule will not apply to "salaried or other alternate payment methods made to employees."
The Department of Revenue also implemented Ala. Admin. Code r. 810-3-72-.02, adding definitions and other qualifying information for employers. Specifically, the new rule:
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