Ivey Signs Overtime Tax Break for Alabama Workers

MONTGOMERY, Ala. — Gov. Kay Ivey on April 17 signed House Bill 527, creating a state income tax deduction of up to $1,000 on qualified overtime compensation for Alabama taxpayers. The law, which takes effect Oct. 1, applies to tax years 2026 through 2028 and defines qualified overtime as the premium portion required under the federal Fair Labor Standards Act — the same portion deductible federally under the One Big Beautiful Bill Act.[1][3][5] This follows the expiration of a prior overtime exemption on June 30, 2025, which had excluded overtime pay from gross income for full-time hourly workers earning over 40 hours weekly.[2][6] HB 527 emerged from legislative efforts to provide targeted relief after the House attached it to a grocery tax holiday provision earlier that week.[4] Sponsors aimed to boost take-home pay for blue-collar workers in manufacturing hubs like Huntsville and automotive plants in Tuscaloosa, where overtime is common. The deduction caps at $1,000 per taxpayer, calculated solely on the overtime premium, not base pay for extra hours.[1][3] The signing caps a session focused on tax relief amid Alabama's 5% state income tax rate. Unlike the 2024-2025 exemption requiring employer reports to the Alabama Department of Revenue via Forms A-6 and A-1, this deduction shifts the burden to individual filers.[2] Ivey highlighted the bill's role in rewarding labor during a ceremony, stating it aids families stretching budgets in rural areas and urban centers alike.[5]