Starting January 1, hourly workers who perform work in excess of 40 hours per week, overtime, will take home a larger portion of their wages as a new policy goes into effect.
The bipartisan idea was proposed by Alabama House Minority Leader Anthony Daniels.
Rep. Daniels’ (D-Huntsville) bill to eliminate state income tax on overtime pay for hourly workers was enacted in the 2023 legislative session with unanimous bipartisan support with a 103-0 vote in the Alabama House and 30-0 in the Alabama Senate. The bill was signed into law by Governor Kay Ivey (R).
Alabama is the first state with state income taxes to eliminate the tax on overtime pay.
RELATED: Overtime tax cut: ‘5% pay raise every hour’
The concept has even drawn interest from other state legislatures, as well as attention in Congress. In Alabama, hourly and overtime wages are taxed by the state at a rate of 5%. Overtime pay is typically 1.5 times the regular hourly wage.
This tax break effectively gives employees a 5% raise on overtime, cost-free to employers. It is hoped by legislators that this change will help employers who are currently struggling to fill positions due to shortages in the workforce. This take-home increase will also stimulate local economies as workers will have more money to spend.
“As people throughout Alabama celebrate the New Year, those who work overtime hours will also soon be celebrating a new and bigger paycheck that will reward their extra effort on the job,” said Leader Daniels. “This is the type of pro-growth economic policy that will have a significant and immediate positive impact on hard-working Alabama families. It demonstrates what we can achieve when we work together in the best interests of the people we represent.”
RELATED: Business, state leaders celebrate end of overtime taxes in Alabama
Daniels is running for Congress in Alabama’s Second Congressional District as one of 13 Democrats competing in the March 5, 2024 Primary.
The Legislature also passed a historic cut in the state’s sales tax on groceries. The two bipartisan tax cuts combined are expected to return an estimated $155 million to the pockets of Alabama families in 2024.
“2023 was a year marked by great progress for our state. From improving education to cutting taxes, the Alabama Legislature delivered results for our citizens,” Speaker of the House Nathaniel Ledbetter (R-Rainsville) said on the social media platform X on Monday.
“I’m excited to roll our momentum into the new year and continue meeting the needs of Alabamians. Happy new year to all!”
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