Under current Alabama law, overtime compensation paid to nonexempt employees in accordance with the Fair Labor Standards Act (FLSA) is exempt from state income tax. This exemption is scheduled to expire on June 30, 2025.

Next Steps

Effective July 1, 2025, employers will be required to resume withholding Alabama state income tax on overtime wages paid to nonexempt employees.

Please note that a bill has been introduced, which, if passed, would make the overtime tax exemption permanent. However, until such legislation is enacted, employers should plan for the exemption to end as scheduled. We will continue to monitor any legislative changes and provide updates.

What Employers Need to Do Now

For payrolls dated July 1, 2025, or later, be prepared to withhold Alabama state income tax on overtime pay.

If you have any questions, please reach out to your Dent Moses advisor.