Alabama recently expanded the types of overtime that qualify for an exemption from personal income taxes and withholding. From January 1, 2024 to September 30, 2024, overtime compensation is exempt from Alabama income tax and withholding if it is paid to full-time hourly employees for working more than 40 hours in a week. Beginning October 1, 2024 to June 30, 2025, overtime compensation is exempt from Alabama income tax and withholding if it is paid pursuant to the U.S. Fair Labor Standards Act (FLSA) or collective bargaining agreements under the National Labor Railway Act (NLRA).
Accordingly, beginning October 1, 2024, employers should report exempt overtime compensation by applying the new FLSA/NLRA standard. While the amendment expands the exempt overtime compensation subject to reporting, it does not alter the methods for reporting. Employers must still report exempt overtime information electronically according to their regular reporting schedule on the A-1 (Quarterly) or A-6 (Monthly).
