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Alabama Overtime Pay Exemption – What You Need to Know

November 29, 2023

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Beginning January 1, 2024, overtime pay received by full-time hourly wage employees is exempt from Alabama income tax. This new exemption is effective until June 30, 2025.

Criteria for Overtime Pay:

  • Overtime pay is defined as wages paid to full-time hourly wage employees exceeding 40 hours a week.
  • Only wages subject to Alabama withholding are used in calculating the 40-hour weekly threshold.
  • Salaried employees are not eligible even if they receive overtime pay.
  • Paid time off does not count towards overtime.
  • The exemption applies solely to wages surpassing 40 hours in a work week, regardless of the employer’s method of calculating overtime.
  • Part-time or seasonal employees qualify for the exemption if they work more than 40 hours in a work week.

Reporting Requirements:

  • 2023 Form A-3 due January 31, 2024
    • Aggregate amount of overtime paid during 2023 calendar year
    • Total number of full-time hourly employees who received overtime pay in 2023
  • 2024 monthly Form A-6 or quarterly Form A-1 withholding returns
    • Aggregate amount of overtime paid during the period
    • Total number of full-time hourly employees who received overtime pay
  • The Department of Revenue has proposed reporting exempt overtime wages in Box 14 of Form W-2 with the description “EX OT WAGES”.