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Alabama Will Exclude Overtime Pay from State Taxation

19 Jul

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Update applicable to:

All employers conducting business in Alabama

What happened?

Alabama has passed House Bill 217 (HB 217) to exclude from gross income for state income tax purposes the compensation received by full-time, hourly wage-paid employees for work performed beyond 40 hours in a week.

What are the details?

Starting January 1, 2024, until June 30, 2025, compensation for work beyond 40 hours per week will not be subject to Alabama state income tax.

Employers with employees subject to Alabama state income tax must provide the following information to the Alabama Department of Revenue (DOR):

  • By January 31, 2024, the total amount of compensation paid to full-time, hourly wage-paid employees for work exceeding 40 hours in a week and the total number of employees who received it for the tax year starting January 1, 2023.
  • For tax years beginning on or after January 1, 2024, and onward, the total compensation paid to full-time, hourly wage-paid employees for work exceeding 40 hours in a week and the total number of employees who received it. This information must be provided monthly or quarterly, and the deadline will be the due date for the corresponding monthly or quarterly withholding tax returns.

For more information, please see the links below:

Official Bill Page

Bill HB217 (scroll to page 4 of document to view the applicable information)

Article 1, Article 2

What do employers need to do?

From January 1, 2024, to June 30, 2025, employers with employees subject to Alabama state income tax should exclude compensation paid to full-time employees working over 40 hours in a week from the gross income for state income tax purposes. Employers must comply with the reporting requirements by submitting the necessary information to the Alabama DOR as described in the provided details.

Need help understanding how changes to employment laws will affect your business?

Learn more about how Vensure's Alabama PEO services can help you navigate complex employment laws and keep your business compliant.


This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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