Overtime tax bill heads to final passage

MONTGOMERY, Ala. (WSFA) - Lawmakers want you to take home more of your paycheck and increase labor force participation by offering you more money if you work overtime.

A bill to cut the state tax on overtime pay made it out of committee and is on its way to final passage with bipartisan support.

Lawmakers say Alabamians who are paid hourly and get overtime pay would essentially get a 5% pay raise. That is how much the state taxes overtime pay and how much employees could keep if they work more than 40 hours per week.

This applies to all industries or fields of work. However, it does not require employees to pay more compensation than the time and a half already in place.

The chair of the committee that handles the ETF, Senator Arthur Orr, R-Limestone County, offered a last-minute amendment to the bill that was adopted. It creates a cap, meaning your overtime will be taxed once you earn more than $2,000. If passed, this would be a cut of the $21 million to the Education Trust Fund the first year.

Some lawmakers say the cap defeats the purpose of the bill, but there is still support.

“This will give them an opportunity to be competitive with other states, but also give them an opportunity to have their current workforce being able to work overtime, and so that they can recruit and retain the talent and also increase the participation time,” said House Minority Leader Rep. Anthony Daniels.

“I wanted to show strong bipartisan commitment to the working people and families of Alabama because that is what makes us a great place to do business,” stated Senator Sam Givhan (R) Madison County.

If approved and signed by the governor, Lawmakers say this would be the first tax cut of its kind in the country. Additionally, the bill would have to be renewed in 2027.

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