Alabama Overtime Pay Exemption Effective January 2024

At A Glance

• Starting January 1, 2024, through June 30, 2025, in Alabama, overtime wages should be excluded after making any pretax deductions.
• For Tax Year 2023, submit a one-time report of Historical Overtime Data by January 31, 2024.
• The state will not update its paper forms for reporting overtime pay.
• Use ‘EX OT Wages’ as the identifier in Box 14 of the employee’s W-2 form.

Introduction

Effective January 2024: Full-time hourly employees receiving overtime for more than 40 hours worked per week between January 1, 2024 through June 30, 2025 will be exempt and therefore excluded from gross income. Employers will be required to submit reports on a monthly or quarterly basis. The Alabama Department of Revenue has provided instructions for the overtime pay withholding and reporting on their website.

Reporting Overtime Wages in Alabama

Employers are still required to report overtime wages starting for tax year 2023 due on January 31, 2024 .Employers must report the aggregate amount of overtime paid during the reporting period, as well as the total number of full-time hourly employees who received overtime during the tax year of 2023 per the guidance of HB 2173.

Bulk Filing Requirements

Third party agents like bulk filers, must submit a one-time bulk file process separate from the current Form A-3 bulk file process to report overtime wages for tax year 2023. Beginning of tax year 2024, filers will be able to report overtime wages using two new text fields that will be available in the bulk file for Forms A-1 and A-6. Since these technical solutions are not readily available at this time, the agency intends to release additional information and schemas for bulk filers in the near future.

The agency is not updating the paper versions of Forms A-1, A-3, and A-6, and employers that have been using the paper forms thus far are encouraged to use the My Alabama Taxes portal for all filing and reporting purposes.

Employee W-2 Statements

Employers should use “EX OT WAGES” as the identifier on Box 14 of the employee’s W-2 form to report the exempt overtime wages.

Withholding Tax Computation

To calculate overtime – pay exemption, use only the wages subject to Alabama withholding above 40 hours for resident and non-resident employees.
To calculate Alabama withholding tax, subtract the pre-tax deductions and then exclude the overtime wages to result in the gross taxable wages subject to Alabama’s withholding tax.

Example provided by the agency below.

For more information on Alabama's wage and payroll tax laws, check out our Alabama Wage and Payroll Tax Facts page.

Next Steps

• Paylocity is closely monitoring these changes and awaiting on additional publications to be released by the agency to support the reporting for employer.
• If employers may need to contact the agency the agency recommends to use the email: withholdingtax@revenue.alabama.gov

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.