May 8, 2023 Group Watch: AL House Passes Bill to Protect Overtime Pay from State Income Tax
The Alabama House of Representatives has unanimously passed a bill to exempt overtime pay from the state income tax, an idea lawmakers praised as innovative. The bill’s sponsor said it would help employees by allowing them to keep more of what they earn. The bill says earnings received by a full-time hourly employee for work performed in excess of 40 hours in a week does not count as gross income for purposes of the state income tax, which carries a 5 percent rate. The bill says the exemption will expire after three years unless the legislature extends it. That will provide a chance to evaluate the impact of the exemption since the idea has not been tried before. The fiscal note from the Legislative Services Agency estimates that the bill would reduce revenue to the Education Trust Fund by $45 million a year.
