Lawmakers pass scaled-back tax exemption on overtime pay
Alabama lawmakers have passed a bill to exempt overtime pay from the state income tax after placing a cap on the total amount of exemptions claimed.
HB217 by House Minority Leader Anthony Daniels, D-Huntsville, passed the House and Senate without a dissenting vote and goes to Gov. Kay Ivey, who can sign it into law. The House gave Daniels a standing ovation when the innovative bill got final approval Thursday. Daniels said the bill would allow workers to take home more of their pay and would help businesses because it will be an incentive for work and productivity during a time when employers are struggling to fill jobs. That message attracted support from both sides of the aisle.
“It’s truly a joint effort by House and Senate,” Daniels said. “When all of us come together we can accomplish anything. It’s a rare opportunity to pass something that hasn’t been done by any state in America. It’s a win for all of us.”
But the bill was scaled back from its original form.
Daniels’ bill originally exempted all overtime pay from the state income tax, which carries a 5% rate. A Senate committee amended the bill Wednesday to cap the exemption for an individual worker at $2,000 a year, which would have effectively limited the annual benefit to $100. Sen. Arthur Orr, R-Decatur, chair of the Senate education budget committee, proposed the amendment because he said he was concerned that the exemption would reduce revenues to the Education Trust Fund by an estimated $45 million a year. Lawmakers have approved other bills reducing money going to the ETF, including including the reduction in the sales tax on food that received final approval Thursday. The $2,000 cap reduced the impact of the overtime tax exemption on the ETF to $22 million.
Thursday, the Senate removed that individual cap and instead placed an annual cap of $25 million on the total amount of exemptions that can be claimed statewide per year. The bill says the Alabama Department of Revenue shall adopt rules to enforce the cap. The Senate then passed the bill by a vote of 34-0. The House voted 103-0 to concur with the revised bill. That sends it to the governor’s desk.
The exemption would apply to all full-time hourly workers in the public and private sectors. The bill includes a “sunset” provision, meaning it will expire in January 2027 unless the Legislature extends it.
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