Alabama has enacted House Bill 217 (HB 217), which excludes from gross income for state income tax purposes amounts received by a full-time hourly wage-paid employee as compensation for work performed in excess of 40 hours in a week.
The exemption provided under HB 217 will be in effect for tax years that begin after December 31, 2023, and end prior to June 30, 2025.
The Details:
As a result of HB 217, for tax years beginning after December 31, 2023 and ending prior to June 30, 2025, amounts received by a full-time hourly wage-paid employee as compensation for work performed in excess of 40 hours in a week will be excluded from Alabama state income tax. In short, the statute effectively limits the exemption to the 2024 tax year. For example, an employer with a tax year starting January 1, 2024 and ending on December 31, 2024 would apply the exclusion for that tax year, and an employer with a tax year starting on July 1, 2024 and ending on June 30, 2025 would apply the exclusion for that tax year.
HB 217 also requires that employers with employees subject to Alabama state income tax must submit to the Alabama Department of Revenue (DOR) on forms prescribed by the DOR the following information:
· No later than January 31, 2024, the total amount received by full-time hourly wage-paid employees as compensation for work performed in excess of 40 hours in a week and the total number of employees for which it was paid for the tax year beginning January 1, 2023.
· For the tax year beginning on or after January 1, 2024, and each tax year thereafter, the total amount received by full-time hourly wage-paid employees as compensation for work performed in excess of 40 hours in a week and the total number of employees for which it was paid. This information must be provided monthly or quarterly and will be due no later than the due date for the corresponding monthly or quarterly withholding tax returns.
Next Steps:
For tax years beginning after December 31, 2023 until tax years ending prior to June 30, 2025, employers with employees subject to Alabama state income tax should not include the compensation paid to full-time employees for working in excess of 40 hours in a week in the gross income for Alabama state income tax purposes.
Employers subject to the provisions of HB 217 must submit to the Alabama DOR the required information as noted in the bullets above.
ADP is currently assessing the impact of HB 217 on its products and services and will provide additional updates in the future.
Have Questions?
Please contact your dedicated service professional with any questions.