August 2, 2023
Employment Tax
Impact: High
Summary
For tax years beginning on or after January 1, 2024, overtime pay for full-time hourly employees is temporarily exempt from Alabama state income tax. The exemption is set to expire on June 30, 2025, unless renewed by state lawmakers.
Overview
To incentivize employees to work overtime hours, the Alabama legislature enacted House Bill 217 which excludes wages paid to full-time hourly employees for work performed in excess of 40 hours per week from the state’s definition of gross income and exempts such overtime pay from state income tax for tax years beginning on or after January 1, 2024. Currently there is no cap on how much overtime pay is eligible for exemption.
Each employer is required to submit to the Department of Revenue, on forms prescribed by the Department, the following:
• For the tax year beginning January 1, 2023, the total amount received by full-time hourly wage-paid employees as compensation for work performed in excess of 40 hours in a week and the total number of employees for which it was paid. The data is due no later than January 31, 2024.
• For the tax year beginning on or after January 1, 2024, and each tax year thereafter, the total amount received by full-time hourly wage-paid employees as compensation for work performed in excess of 40 hours in a week and the total number of employees for which it was paid. The data shall be provided monthly or quarterly and shall be due no later than the due date for the corresponding monthly or quarterly withholding tax returns.
Additional information as may be required by the department.
The exemption is available for tax years that begin after December 31, 2023 and end prior to June 30, 2025.
How we can help
Vialto can assist you in complying with your responsibilities related to the state overtime exemption, including determining which employees are affected, reviewing amounts paid, assisting with any required reporting, and drafting employee communications.
Please reach out directly to your Vialto contact or one of the individuals listed below to discuss next steps.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
• Tina Schrob, Partner | cristina.g.schrob@vialto.com
• Greg Fetter, Partner | gregory.fetter@vialto.com
• Ligeia Donis, Partner | ligeia.m.donis@vialto.com
• Priya Schwartzburt, Director | priya.c.schwartzburt@vialto.com
Further information on Vialto Partners can be found here: www.vialtopartners.com
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