MONTGOMERY, Ala. – A new law is designed to provide more pay for hourly workers who work overtime. Gov. Kay Ivey ceremoniously signed the bill into law Thursday afternoon.
“Alabamians have never been afraid of hard work. When opportunities and sometimes challenges are presented, the citizens of our state roll up their sleeves and get the job done,” said Ivey.
Thanks to the new law, sponsored by House Minority Leader Anthony Daniels, the state income tax on overtime pay will be eliminated.
“I was talking to a gentleman at a nursery in Madison County that was telling me about some of the things that we should consider when it comes to being able to put dollars back into the pockets of Alabamians,” said Daniels.
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.
Daniels says this tax break is free to employers, which will help employers who are currently struggling to fill positions due to shortages in the workforce.
“I think when they hear about it, they’ll be trying to get back to the workforce,” said Daniels.
The tax money would have gone to the state’s Education Trust Fund, but with this take-home increase, Daniels says employees will increase spending in their local economy.
“Counties will be able to receive more tax revenue and the state. So when you look at the overall costs, the benefits outweigh the liability,” said Daniels.
This will go into effect on Jan. 1. It’s scheduled to sunset in 2025, but Daniels is confident it will be renewed.