What happened?

On May 20, 2024, Governor Kay Ivey signed House Bill 407 (HB 407), which amends overtime for employers.

Quick Summary:

• Amends the definition of gross income to exempt overtime compensation from state income tax and requires employers to report the total overtime compensation paid and the number of employees receiving it to the Department of Revenue.
  
• This law aims to provide tax relief by exempting overtime compensation from state income tax, encouraging additional work hours, and potentially boosting the economy.

What are the details?

• Amendment to Gross Income Definition:
  
  • The bill amends Section 40-18-14 to include various sources of income under the definition of gross income.
    
  • Exemptions:
    
    • Specifically exempts amounts paid as overtime compensation from state income tax.
    • The law contemplates exemptions to these requirements, such as life insurance, annuities, and gifts.

• Overtime Compensation:
  
  • Exemption: Amounts received by full-time hourly wage-paid employees as overtime compensation for work performed more than 40 hours a week.
  • Effective Period: The exemption is available for tax years beginning after December 31, 2024, and ending before June 30, 2025.
  • Employer Reporting: Employers must report to the Department of Revenue the total amount of overtime compensation and the number of employees receiving it.

• Reporting Requirements
  
  • Data Submission:
    
    • Employers must report the total overtime compensation paid to full-time hourly wage-paid employees and the number of employees receiving it.
    • For subsequent tax years, data must be provided monthly or quarterly, aligned with the due dates for withholding tax returns.
      
  • Forms and Compliance:
    
    • Employers need to use forms prescribed by the Department of Revenue to submit the required data.

Business Considerations

• Prepare to provide data on overtime compensation monthly or quarterly for subsequent tax years, aligning with the due dates for withholding tax returns.

• Use the forms prescribed by the Department of Revenue to ensure all required information is submitted correctly and on time.

• Review and adjust payroll systems and processes to accurately track and report overtime compensation separately from regular wages.

Source References

• AL HB 407

Resources

• AL Tax Form 2024

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