Alabama Democrats, Republicans support bill to eliminate tax on overtime pay

The bill would eliminate the 5% tax on overtime work

By: - April 4, 2023 1:50 pm

House Minority Leader Anthony Daniels, D-Huntsville, speaks during the session of the Alabama House of Representatives on Tuesday, March 14, 2023. (Stew Milne for Alabama Reflector)

The Alabama legislative leadership are united on at least one front: eliminating income tax on overtime pay.

HB217, sponsored by House Minority Leader Anthony Daniels, would eliminate the state income tax on overtime work. The rate is 5% on yearly incomes of $3,000 or more.

The bill has drawn several co-sponsors, including Alabama House Speaker Nathaniel Ledbetter, R-Rainsville; House Ways and Means General Fund committee chairman Rex Reynolds, R-Huntsville and House Ways and Means Education committee chairman Danny Garrett, R- Trussville.

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Overtime work, or any work performed over 40 hours per week, is paid at a minimum of 150% of a worker’s rate of pay. While workers are, theoretically, taking home more money, there are more taxes being levied, and it can act as a disincentive to work extra hours, Daniels said.

“I think it’ll increase productivity and also probably get some folks that they – I mean, I don’t know who doesn’t want to work – but I think it’ll really help interest more individuals to want to work more, to bring home more,” Daniels said.

House Speaker Nathaniel Ledbetter, R-Rainsville, enters the chamber of the Alabama House of Representatives before the start of the session on March 14, 2023. (Stew Milne for Alabama Reflector)

The Legislative Fiscal Office had not analyzed the impact of the bill as of Tuesday afternoon. But Ledbetter said Tuesday he believed it would decrease the Education Trust Fund by about $40 million. Ledbetter said he believes not taxing overtime pay will put more money back into the economy.

“I not only think it helps the employee, it helps the employer because it gives employees the opportunity to work more to get that extra incentive,” he said.

The current year’s ETF is $8.2 billion.

Reynolds said he believes it would create an incentive for people to work more hours.

“Sometimes you hear people saying they don’t want to work extra because they don’t want to lose half of that pay,” he said.

Bren Riley, president of the Alabama AFL-CIO, the largest federation of labor unions in the United States, said that eliminating the income tax on overtime pay would mean more money back into the state’s economy, and that “working folks” would benefit most.

“Buying groceries, maybe going out to a little nicer place for dinner – we think you that just like removing the tax on groceries – we think that money will be spent, and ultimately, our State Education Trust Fund and General Fund budgets that are funded by tax would not suffer,” Riley said.

Riley, who worked in a Goodyear Tire plant in Gadsden for 34 years, said it wasn’t uncommon for him to work seven days a week and put in 60 to 70 hours.

“Maybe if we can get it passed in Alabama, we can flip the script on ‘em and take it to Georgia. Take it to Arkansas. Let’s go to Louisiana with it. Hell, we want to help folks, let’s help them,” Riley said.

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Alander Rocha
Alander Rocha

Alander Rocha is a journalist based in Montgomery, and he reports on government, policy and healthcare. He previously worked for KFF Health News and the Red & Black, Georgia's student newspaper. He is a Tulane and Georgia alumnus with a two-year stint in the U.S. Peace Corps.

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