Nice information in your hard-working hourly employees and one thing to maintain in your radar: A brand new Alabama extra time tax legislation advantages staff. Alabama’s 2024 extra time legislation exempts staff’ extra time earnings from the state’s revenue tax. 

Right here’s a breakdown of what you as a enterprise proprietor and employer have to learn about this new profit and required reporting.

What’s the Alabama extra time tax legislation? 

Efficient January 1, 2024, extra time pay earned by hourly staff who’ve labored over 40 hours in a given workweek is exempt from Alabama state revenue tax. 

In less complicated phrases, let’s say an worker works 40 hours every week however places in an additional 4 hours of extra time. Their earnings for the preliminary 40 hours are topic to Alabama state revenue tax. Nonetheless, the earnings for these 4 hours of extra time are exempt from state revenue tax withholding. To your staff, this implies extra money of their take-home pay.

How lengthy does the Alabama extra time revenue exemption final?

The Alabama revenue tax exemption for extra time pay is at the moment set to run out on June 30, 2025. 

The state revenue tax exemption applies to extra time acquired/paid on or after  January 1, 2024, and earlier than June 30, 2025

Alabama lawmakers might select to increase the profit relying on its influence on the state income. 

What hours qualify for the extra time revenue exemption?

The Alabama extra time exemption applies to staff whose wages are topic to Alabama withholding for work over 40 hours in a given week.  

Alabama defines extra time pay for the exemption as compensation earned by a full-time hourly wage worker for work accomplished past 40 hours in every week. Nonetheless, the ALDOR goes on to make clear any hourly part-time or seasonal worker qualifies for exempt extra time wages in the event that they work over 40 hours within the week. Moreover, commissions and bonuses paid along with an hourly wage aren’t exempt. Mileage foundation compensation will not be coated underneath this laws.

The Alabama Division of Income has said solely wages which might be topic to Alabama withholding are thought of when figuring out whether or not the 40-hour weekly threshold has been exceeded. This is applicable to each resident and non-resident staff. 

Does your organization pay extra time for workers who work over eight hours a day? Needless to say the extra time revenue exemption solely applies to wages for hours exceeding the 40-hour workweek. 

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Alabama extra time revenue exemption reporting necessities

The Alabama extra time tax legislation comes with new reporting necessities for employers who withhold Alabama tax from worker wages. 

Starting within the 2024 tax yr, employers should report the overall quantity of extra time paid and the variety of staff who acquired extra time pay through the interval to the Alabama Division of Income as month-to-month or quarterly reporting.  

Employers ought to report the overall mixture quantity of extra time paid and the overall variety of staff who acquired extra time pay. 

Enter the brand new information into the brand new discipline bins on Kind A-6 and A-1 withholding returns when submitting by My Alabama Taxes. Alabama is not going to replace paper varieties with the brand new discipline bins. Paper filers are inspired to start submitting by My Alabama Taxes to adjust to the brand new necessities. 

The ALDOR suggests reporting OT wages exempt from AL revenue tax on the worker Kind W-2 in Field 14 utilizing “EX OT WAGES” because the indicator: for instance, EX OT WAGES- $15,250 for the yr.

Pointers for employers

Whereas the brand new legislation does current challenges, employers can navigate the brand new extra time legislation laws successfully and effectively by staying knowledgeable and following the required steps.

To adjust to the Alabama extra time tax legislation, comply with the following pointers:

  • Establish affected staff
  • Evaluation payroll practices and guarantee wages for extra time hours topic to Alabama withholding are accurately exempt from state revenue tax OR spend money on payroll software program for correct dealing with of the Alabama extra time pay exemption
  • Educate staff concerning the new legislation and preserve communication open to forestall misunderstandings
  • Use time and attendance software program for correct monitoring of worker hours and calculation of extra time hours labored
  • Report extra time pay on the My Alabama Taxes web site
  • Maintain knowledgeable on additional updates from the Alabama Division of Income’s web site

Need assistance maintaining with the brand new Alabama extra time tax legislation? Use Patriot’s Full Service payroll for correct extra time calculations and Alabama reporting. Plus, our payroll integrates seamlessly with our time and attendance software program add-on. Attempt it without spending a dime at the moment!

This isn’t meant as authorized recommendation; for extra data, please click on right here.

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