Ivey Signs Overtime Tax Break into Law for Alabama Workers

MONTGOMERY — Governor Kay Ivey signed House Bill 527 into law on Thursday, providing an income tax deduction of up to $1,000 for qualified overtime compensation and suspending Alabama's 2% state sales tax on groceries from May 1 through June 30, 2026.[1][2][3] Sponsored by Rep. James Lomax, R-Huntsville, and carried in the Senate by Sen. Arthur Orr, R-Decatur, the legislation targets tax years 2026 through 2028 and applies whether taxpayers itemize or not.[1][3] Qualified overtime is defined as pay required under federal law exceeding an employee's regular rate.[3] The overtime deduction revives a prior temporary exemption from 2023 that ran through June 30, 2025, after which overtime wages faced full state income tax.[3] During House debate, Rep. Marilyn Lands, D-Huntsville, proposed amendments to raise the deduction to $5,000 and then $2,500, but Lomax moved to table both, with the House approving.[3] "HB527 provides meaningful, direct tax relief by delivering real savings at the grocery store for all families and rewarding hardworking Alabamians by recognizing the value of overtime work," Lomax said.[1][3] The grocery tax holiday offers immediate relief amid rising food costs in Alabama, where manufacturing hubs like Huntsville and Decatur rely on overtime labor.[2][3] Ivey's office hailed the bill as putting "money back into the pockets of families when they need it most," bolstering incentives for workers in the state's automotive plants, aerospace firms and agriculture sectors.[1]