Alabama lawmakers expanded a tax exemption for overtime pay Tuesday when they approved an executive amendment by Gov. Kay Ivey that removed a $25 million annual cap on total exemptions that can be claimed.

The Legislature added the $25 million cap before passing the bill Thursday . The governor sent the bill back Tuesday with the proposed amendment to remove the cap. The amendment also said the exemption will expire June 30, 2025, unless extended by the Legislature. Before the amendment, the exemption was set to expire Jan, 1, 2027 unless extended.

House Minority Leader Anthony Daniels, D-Huntsville, sponsor of the bill, urged the House to agree with the governor’s amendment, and the House voted 103-0 to concur. That sent the bill to the Senate, which also concurred.

Daniels said the bill will be a benefit for workers because they can keep more of the money they earn and will help for businesses because it will boost productivity and encourage people to working during a time when employers are struggling to fill jobs.

“This will put 5% more money into the pockets of those that are working overtime for overtime pay,” Daniels said. “Five percent of time-and-a-half is a lot better than 5% or base pay. So therefore, this puts more money into those individuals pockets and companies can use this in their benefits packages.”

The exemption applies to full-time hourly workers for compensation for work of more than 40 hours a week. It applies to public and private employers. The exemption becomes available Jan. 1, 2024.

“Let’s think about our support personnel in the education system,” Daniels said. “Let’s think about our police officers. Let’s think about our firefighters. Let’s think about healthcare workers. Those industries are going to be able to benefit even more from this piece of legislation. So, it’s a benefit to the entire state.”

Ivey, in a memo attached to her executive amendment, said removal of the $25 million cap would mean more money for workers and make it easier for employers to administer. She said moving the expiration date 18 months sooner, to June 2025, will better enable the Legislature to monitor the impact of the exemption on the education budget. Income taxes go to the Education Trust Fund. The Legislature applied the cap out of concerns about the loss of revenue to the ETF, particularly considering that lawmakers also passed a bill to repeal half of the state sales tax on groceries.

Daniels has said he believes the loss to the ETF from the overtime exemption will be offset, at least to some extent, by workers spending their extra pay on other items. Daniels said he is confident the Legislature will extend the exemption before the June 2025 expiration, with elections coming up in 2026.

“June ‘25, approximately a year out from a primary,” Daniels said. “I don’t think any member of this chamber will want to vote to not renew this particular package.”