Alabama workers could see their overtime pay exempt from state income tax, under legislation advanced Tuesday by state lawmakers.
The Alabama House of Representatives unanimously approved the legislation that now moves to the Alabama Senate. The legislation sponsored by House Minority Leader Anthony Daniels would exempt hours worked in excess of 40 in a given week from the calculation of gross income for state income tax purposes.
Daniels said the change would allow hourly workers to keep more of their overtime pay, instead of paying the 5% state income tax on the time-and-a-half pay, and also help companies retain and reward employees.
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The Alabama House of Representatives has unanimously approved a measure that allow hourly workers to keep more of their overtime pay.
“All the prices are going up whether it’s the grocery store or retail or whatever it is,” said Daniels, a Democrat from Huntsville. “Everybody’s got ‘now hiring’ signs from Mobile to Huntsville,” he added.
The proposal is one of several tax cut proposals being debated in the Alabama Legislature. Lawmakers have also proposed ending the state sales tax on groceries.
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Because it is a new proposal, lawmakers in committee added an amendment to end the tax exemption after three years unless lawmakers vote to extend it. The tax exemption would cost the state $34 million in 2024 and a minimum of $45 million in the following two years, according to an estimate from the Legislative Services Agency.
“It’s the first one we’ve seen like it in the country. It’s an incentive to get our labor force participation up, an incentive for people who are already working to work more,” Republican Rep. Danny Garrett, chairman of the House education budget committee, said.
