A new Alabama overtime law will allow hourly employees who work overtime to keep more of their earnings. While the benefit is temporary (as of now), it will provide some financial relief for Alabama employees who work overtime. Of the 41 states that impose an income tax, Alabama is the only one to exempt overtime pay.
“I believe that this will not only allow hard-working Alabamians to keep more of what they earn, but it will also help businesses by helping them retain employees in a tight labor market,” said Alabama House Minority Leader Anthony Daniels, who sponsored the bill.
The new Alabama overtime law exempts weekly hours worked over 40 from Alabama's income tax. So, if you work 45 hours in one week, you will only pay the 5% state income tax on 40 hours. Workers who put in several hours of overtime each week will notice a difference in their paycheck amounts.
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The new law doesn’t take effect until January 2024, so Alabamians will stay pay state income tax on overtime hours until next year. The overtime exemption in Alabama is currently set to run through June 2025.
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