Overtime Tax Exemption Reporting Guide

The Overtime Tax exemption bill, sponsored by House Minority Leader Anthony Daniels, was passed and signed into law in 2023. This legislation removes the 5% state income tax from overtime pay for full-time hourly wage employees who work 40 or more hours a week.

BCA supported and encouraged the passage of Rep. Daniel’s Overtime Tax bill, because it allows Alabama’s workers to capture more of their overtime wages, incentivizing them to work more hours and ultimately reducing the strain on employers in times of workforce shortages.

We want to ensure that all our members understand and comply with the new reporting requirements set forth by the Alabama Department of Revenue (ALDOR) for overtime pay. This guide provides essential information to help you navigate these requirements.

WHO Must Report to ALDOR:

WHAT Overtime Qualifies as Exempt:

WHEN and WHAT to Report:

HOW to Report:

Visit the Alabama Revenue Department’s guidance page for frequently asked questions and more information regarding overtime tax exemption reporting.