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:
- All employers that are required to withhold Alabama tax from the wages of their employees must comply with these reporting requirements.
WHAT Overtime Qualifies as Exempt:
- Overtime pay received beginning on or after January 1, 2024, through June 30, 2025, qualifies for reporting. This includes amounts received by full-time hourly wage-paid employees as compensation for work performed in excess of 40 hours in a week. Only full-time hourly employees will qualify. Hybrid plans where an employee is salaried nonexempt but can also earn overtime will not qualify for the overtime exemption. If an employee is paid by the hour and works more than 40 hours in one week, any compensation received for the hours worked in excess of 40 hours is exempt.
WHEN and WHAT to Report:
- One-Time Report – Historical 2023 Overtime Data:
- Due Date: January 31, 2024
- Employers are required to report:
- Aggregate amount of overtime paid during the 2023 calendar year.
- Total number of full-time hourly employees who received overtime pay in 2023.
- Monthly/Quarterly Reporting Beginning for 2024 Tax Year:
- Reported with Form A-6 (monthly) and Form A-1 (quarterly) withholding returns.
- Employers are required to report:
- Aggregate amount of overtime paid during the specific reporting period (month/quarter).
- Total number of full-time hourly employees who received overtime pay.
HOW to Report:
- Reporting should be conducted through forms or processes within your existing My Alabama Taxes account.
- One-Time Report – Historical 2023 Overtime Data:
- For employers who are NOT Bulk Filers (typical employers), a link will be provided within Form A-3 that will guide you to manually enter the required data.
- For employers who ARE Bulk Filers, a one-time bulk file process separate from the current Form A-3 bulk file process will be required.
- Monthly/Quarterly Reporting Beginning for 2024 Tax Year:
- For employers who are NOT Bulk Filers (typical employers), data should be input into the new field boxes on the Form A-6 and A-1 withholding returns.
- For employers who ARE Bulk Filers, the data should be input into the current bulk file for the A-6 and A-1 return by adding two new required text fields.
Visit the Alabama Revenue Department’s guidance page for frequently asked questions and more information regarding overtime tax exemption reporting.