Alabamians working extra hours can now enjoy a boost in their take-home pay thanks to a new bill that eliminated state income tax on overtime pay for hourly workers.

This bill went into effect Jan. 1, making it the first of its kind in the nation. The bill, sponsored by Rep. Anthony Daniels, a Democrat who represents District 52 in the Huntsville area, was enacted in the 2023 legislative session with unanimous bipartisan support, a 103-0 vote in the Alabama House and 30-0 in the Alabama Senate.

In Alabama, hourly and overtime wages are taxed by the state at 5%. With overtime pay at 1.5 times the regular hourly wage, the 5% taken out for taxes is more noticeable to employees like Mark Wiley, a local railroad worker.

This tax break will give employees a 5% raise on overtime, cost-free to employers, and is aimed at helping employers who are struggling to fill positions. This bill will also allow employees to take home more money, increasing the spending in their local economy.

If an employer fails to correctly implement the 5% salary increase, the discrepancy will be addressed during the earner's tax filing. Additionally, individuals employed by out-of-state companies can still take part in the benefits as long as they pay Alabama taxes.

"The impact of an immediate boost in take-home pay is hard to overstate. All too often, employees working overtime have the satisfaction of an extra-long day of hard work dulled by the tax deductions they see on their pay stub," said Daniels, the Huntsville representative who sponsored the bill. "That's a real punch in the gut to somebody working long hours to make ends meet for their family. This tax change is a boost to that morale, as well as a boost to the wallet and the dinner table. Every dollar counts to a working family, and I know this full well from my childhood."

Rep. Donna Givens, R-Loxley, said this bill is beneficial for Alabamians.
"Anything that helps put money back into the hands of Alabama citizens in times like these is a great thing," Givens said. "Especially when you got the entire legislature, not just Republicans, not just Democrats, but all sides coming together to say people deserve to have the money that they are working overtime for."

Alabama Legislative Political Coordinator for Communications Workers of America Jason James applauded the bill, stating, "I applaud House Minority Leader Daniels for introducing this tax break for working families. I commend Speaker of the House Ledbetter jumping on board early and the entire Alabama Legislature for working together to ensure passage without the cap that was proposed in committee. I'm hopeful that during the upcoming session this legislation will be extended and we'll see continued legislative progress for Alabama workers."