Effective January 1, 2024, the overtime pay exemption applies to various categories of employees, encompassing full-time hourly workers, both residents and non-residents and part-time or seasonal employees, even if their overtime pay is sporadic. The exemption is contingent on a standard 40-hour work week, regardless of daily working hours. Employers subject to Alabama tax withholding obligations must report the aggregate amount of overtime (OT) paid and the total number of employees receiving OT pay. The exemption encompasses OT pay received from January 1, 2024, through June 30, 2025. For individuals working in multiple states, only wages exceeding 40 hours a week are considered for non-residents and residents.
The exemption pertains solely to hours physically worked, excluding PTO or other leave. Only full-time hourly employees qualify, excluding full-time salaried non-exempt employees and those with non-standard hourly work weeks. The exemption encompasses all amounts paid above 40 hours, regardless of the pay rate or method. Compensation elements like mileage, commissions, or bonuses do not qualify. The withholding tax calculation for employees with qualifying OT pay involves deducting pre-tax amounts from gross wages and then exempting OT wages.
For reporting, a one-time report for 2023 is required, detailing the aggregate OT amount and the number of full-time hourly employees receiving OT pay. This information will be reported in conjunction with Form A3. For 2024, monthly or quarterly reports of the same data are mandated to be submitted with withholding tax forms (Form A6 or A1). Paper forms will not be altered for this reporting. Inaccurate submissions can be corrected by sending a MAT message when filing online or by emailing the provided address. While there is no specific penalty for OT exemption data reporting, regular penalties apply to the A3, A1, and A6 forms housing this information.
If you have any questions, please get in touch with Christie Stimpson at 256-513-8335 or cstimpson@anglincpa.com.
For more details, refer to the provided links:
2023 Report Layout: https://www.revenue.alabama.gov/wp-content/uploads/2023/08/OTReportingBlkFilingLayoutWeb.docx
2023 Report Layout (Excel): https://www.revenue.alabama.gov/wp-content/uploads/2023/10/OTReportingBlkFilingLayout.xls
2024 Report Layout: https://www.revenue.alabama.gov/wp-content/uploads/2023/10/OTReportingA1A62024Web.docx
Additional information and details for specific situations related to withholding and reporting of exempt overtime pay can be submitted via email to withholdingtax@revenue.alabama.gov.
Statue: https://arc-sos.state.al.us/ucp/L1280257.AI1.pdf
General Overview: ALDOR Provides Guidance for Overtime Pay Exempt from Income Tax – Alabama Department of Revenue
Guide for Reporting Requirements and FAQ: Overtime Exemption – Alabama Department of Revenue