2025 Alabama Legislative Session Recap

The 2025 Alabama Legislative Session concluded on May 14, 2025 with many updates that could affect you and your business. See below for a recap of some of the most impactful legislative items.

Overtime State Income Tax Exemption Ending

• The exemption of overtime pay from Alabama income tax will expire on June 30, 2025.
• The actual cost to the state education budget was much more significant than the estimated amount, so the exemption was not extended.

Withholding Safe Harbor for Nonresident Employers and Employees

• Beginning January 1, 2026, a 30-day tax safe harbor on individual income for certain nonresidents will go into effect.
• Compensation paid to nonresident employees from nonresident employers will not be subject to Alabama income tax or withholding if the individual works in the state for 30 days or fewer during the calendar year.
• The state of the nonresident must provide a similar exclusion or not levy an individual income tax.

Research and Experimental (R&E) Expenses Immediately Deductible

• Starting with tax years beginning on or after January 1, 2024, “research and experimental expenditures” under IRC Section 174 will be deductible in the same year that they are incurred.
• This differs from the current federal tax law, which generally requires taxpayers to capitalize and amortize R&E expenses over a 5-year period.

State Business Personal Property Tax Threshold Increased

• Beginning October 1, 2025, the exemption and filing threshold for state business personal property tax will rise from $40,000 to $100,000.

 Tax Tribunal Appeals Timeline Lengthened

•  Beginning October 1, 2025, the deadline to appeal final tax assessments will increase from 30 days to 60 days after delivery.

Sales Tax Reductions

• Beginning September 1, 2025, the state sales tax on food will reduce from 3% to 2%.
• Along with this, baby formula, baby wipes, breast milk pumping equipment, baby bottles, diapers, menstrual hygiene products, and maternity clothing will be exempt of the state portion of sales tax.

Portable Benefit Account for Independent Contractors

• New legislation will allow independent contractors to establish their own retirement and health insurance plan through a portable benefit account.

Are you staying ahead? Consult your Wilkins Miller advisor to make the most of tax changes and updates.