Overtime Pay Exemption*

Reporting Guidance and FAQs

For the tax period beginning on or after October 1, 2024, amounts paid as overtime compensation in accordance with the Fair Labor Standards Act shall be excluded from gross income and therefore exempt from Alabama state income tax. Tied with this exemption are employer reporting requirements to ALDOR. Employers are required to report the total aggregate amount of exempt overtime paid and the total number of employees who received exempt overtime pay.

Overtime Pay Exemption: Utilizing My Alabama Taxes and

Existing Forms for Employers to Report

Employers are required to report to ALDOR:

• Beginning January 1, 2024, included with the monthly withholding tax report employers shall report the aggregate amount of exempt overtime paid during the period along with the number of employees who received the exempt overtime pay.

WHO must report to ALDOR?

• All employers that are required to withhold Alabama tax from the wages of their employees.

WHAT overtime qualifies as exempt?

• Amounts exempt from gross income will be overtime wages computed in accordance with the U.S. Fair Labor Standards Act. The effective date of this change will be October 1, 2024.

WHAT overtime qualifies as exempt for employees governed by the National Railway Labor Act?

• Amounts exempt from gross income will be overtime wages computed based on hourly component overtime as state in relevant collective bargaining agreements.
  
• Employers governed by the National Railway Labor Act should continue to exempt employees’ wages based on hourly wages even after October 1, 2024.

WHEN and WHAT do I report?

• Monthly/Quarterly Reporting Beginning for 2024 Tax Year:  
  • Reported with Form A-6 (monthly) and Form A-1 (quarterly) withholding returns.
  • Employers are required to report the following:
    1. Aggregate amount of exempt overtime paid during the period (month/quarter).
    2. Total number of employees who received exempt overtime pay.

HOW do I report?

You will report using forms or processes already in place in your My Alabama Taxes account.

• Monthly/Quarterly Reporting Beginning for 2024 Tax Year: 
  • Two options for reporting through My Alabama Taxes:
    • If you ARE NOT a Bulk Filer (your typical employer): You will input the data into the new field boxes on the Form A-6 and A-1 withholding returns.
    • If you ARE a Bulk Filer: You will input the data utilizing the current bulk file for the A-6 and A-1 return by adding two new required text fields. *For layout instructions, please click on the following link:
    • A1A62024Web File Layout (New: 10/18/2023)
    • A1A6BlkFilingLayout2024 Excel File (New: 1/12/2024)

Will manual paper forms be adjusted?

• Due to the small number of manual paper forms received by ALDOR, the A-3, A-6, and A-1 paper forms will not be adjusted for this reporting. We encourage all employers to report and file through My Alabama Taxes. For information on registering for a My Alabama Taxes account, please visit myalabamataxes.alabama.gov.

Overtime Pay Exemption: Withholding Tax FAQ

What overtime qualifies as exempt?

• Overtime pay received beginning on or after October 1, 2024, through June 30, 2025.
• The exempt overtime pay shall be based on the employee’s overtime computed in accordance with the Fair Labor Standards Act.
• For employers governed by the National Railway Labor Act, the exempt overtime pay is based on the overtime compensation as stated in relevant collective bargaining agreements.

For withholding tax purposes, only wages subject to Alabama withholding are used in calculating the overtime. This applies both to employees who are residents of Alabama and to employees who are non-residents.

• If an Alabama employee (resident) works in multiple states which require withholding would the overtime exemption apply to those wages?

For an Alabama resident, wages earned in another state which is subject to the other state’s withholding tax are not Alabama wages subject to Alabama withholding tax. Since the wages are not Alabama wages subject to Alabama withholding tax, the exemption would not apply in this case.   

• If a non-resident is earning wages while in Alabama, would the overtime exemption apply?

If the wages are considered Alabama wages subject to Alabama withholding tax, any wages which would be considered overtime under the Fair Labor Standards Act would qualify whether earned by a resident or a non-resident.  

• Does paid time off count toward the 40 hour work week?

No, paid time off does not count toward overtime. Under the Fair Labor Standards Act (FLSA), sick time, vacation time, or anytime an employee is not physically working does not count as time worked.

• Will an hourly part time or seasonal employee qualify for exempt overtime wages? 

Yes, wages earned which qualify as overtime according to the Fair Labor Standards Act will qualify for exemption and reporting purposes if earned by an hourly part time or seasonal employee.

• Will an amount of overtime earned on or before June 30, 2025, but paid after this date qualify for exemption?

No, amount must be received/paid prior to June 30, 2025, to qualify for the exemption and reporting purposes.

• For reporting purposes, if an employee receives exempt overtime wages multiple times within a reporting period, (ex: paid weekly and receives overtime 4 times within the monthly reporting period) is the employee reported once for the period or multiple times?

The employee is only reported once for each reporting period regardless of the frequency of overtime paid to them. There is a distinct employee count for each reporting period. Each employee who receives overtime for the reporting period is included only once in the report.

Sequence of Deductions and Exclusions

To compute Alabama withholding tax, subtract pre-tax deductions as you currently do, then exclude the overtime wages, which leaves the gross taxable amount subject to Alabama withholding tax.

Computation of withholding tax when an employee has exempt overtime wages. The amounts used in this example are for informational purposes only and do not reflect actual amounts.
Total Gross Alabama wages for the current payroll period.		$ 5,600
Less: Pre-tax deductions (401k, 125 Cafeteria Plan, etc. computed on Gross Alabama Wages).		$   -873
Less: Exempt overtime wages.		$   -750
Wage amount to be used in Step 1 of the Formula for Computing Alabama Withholding Tax. Please see the Withholding Tax Tables and Instructions for Employers for additional information.		$ 3,977

Form W-2 Reporting in Box 14

ALDOR proposes that exempt overtime wages be reported in Box 14 of employees Form W-2 using “EX OT WAGES” as the indicator: for example, EX OT WAGES- $15,250
If space becomes an issue in Box 14, this may be abbreviated (e.g., EX OT $15,250), or the text may be wrapped.

Amending Exempt Overtime Reported

• I logged into My Alabama Taxes and filed my A1 or A6. However, I input the wrong numbers for the overtime exemption data. How do I correct it?

Log into your My Alabama Taxes account and send a message with the corrected OT exemption data. An ALDOR agent will assist in amending and updating the data. You may also email withholdingtax@revenue.alabama.gov with your withholding tax account number and the corrected OT exemption data.

• The bulk file submitted for my A1 or A6 had the wrong numbers for the overtime exemption data. How do I correct it? 

Log into your My Alabama Taxes account and send a message with the corrected OT exemption data. An ALDOR agent will assist in amending and updating the data. You may also email withholdingtax@revenue.alabama.gov with your withholding tax account number and the corrected OT exemption data.

ALDOR is committed to providing employers and business with guidance and information related to the overtime pay exemption. If you have additional questions related to withholding and reporting of exempt overtime pay, please email withholdingtax@revenue.alabama.gov.

*Act 2024-437 was signed into law on May 7, 2024.