Alabama lawmakers urge final passage of bill to exempt overtime pay from state income tax

By Mike Cason 

Alabama legislators from both parties called Wednesday for final passage of a bill to exempt overtime pay from the state income tax.

The bill, HB217 by House Minority Leader Anthony Daniels, D-Huntsville, has already passed the House but is running short on time in the Senate.

It would make pay for work in excess of 40 hours a week exempt from the 5% state income tax. It would apply to both private and public employees. Daniels said the purpose is to allow employees to bring home more money without their companies having to raise their pay and to encourage productivity and work during a time when businesses are struggling to fill jobs. .

“This is a simple proposal,” Daniels said. “This proposal rewards hard work.”

House Speaker Nathaniel Ledbetter, R-Rainsville, said he was glad to be part of the bipartisan support.

“I don’t co-sponsor many bills, but this one I felt strongly about,” Ledbetter said.

Income taxes support public education in Alabama, and the bill is projected to reduce revenues to the Education Trust Fund by about $45 million a year. But lawmakers who spoke in favor of it said employees would spend the extra money that they take home on other items, contributing to sales tax revenues that support local governments as well as the ETF.

Rep. Danny Garrett, R-Trussville, chairman of the House education budget committee, said the idea of exempting the overtime tax was innovative and would reward people who work.

The bill says the exemption will expire after three years unless the Legislature extends it. That will provide a chance to evaluate the impact of the exemption because the idea has not been tried before.

Senate Minority Leader Bobby Singleton, D-Greensboro, said the bill would help rural communities and the businesses there because employees who travel elsewhere to work would spend their extra income close to home.

“For rural Alabama, this is a great bill,” Singleton said.

Sen. Sam Givhan, R-Huntsville, said he asked to co-sponsor the bill.

Although the bill passed the House by a vote of 105-0, it is running out of time to pass the Senate. Only three days remain in the legislative session.

The Senate education budget committee amended the bill Wednesday to place a $2,000 cap on the cap the amount of overtime exempt from the state income tax. The amended bill could be considered on the Senate floor Thursday.

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