Alabama Reminder - Alabama Overtime Tax Exemption Law Expires on June 30,

Under current law, Alabama exempts amounts paid to nonexempt employees as overtime compensation in accordance with the U.S. Fair Labor Standards Act (FLSA) from state income tax.  This tax exemption is in effect through June 30, 2025.   

Effective July 1, 2025, employers must again withhold state income tax from FLSA overtime wages paid to all nonexempt employees. 

Note that a bill has been proposed that would make overtime tax exemption permanent.   Employers should be prepared for the tax exemption to expire on June 30, 2025, while recognizing there is a possibility the exemption might be made permanent.   ADP® will continue to monitor developments.
 
Next steps

·      For pay dates on and after July 1, 2025, ADP TotalSource® will withhold Alabama state income tax from overtime wages paid using the standard overtime earnings code (Overtime / OT). No further action is needed for most clients.

·      If you previously requested additional codes for tax exempt overtime pay, you must inform ADP TotalSource those codes to be updated with the appropriate taxable status for Alabama state income tax. Please provide your Payroll Business Partner with the pay type’s 2-digit code and name.

Please contact your ADP Service Representative with any questions.