Alabama - Overtime Pay Exemption 2024

For the tax year beginning on or after January 1, 2024, overtime pay received by a full-time hourly wage paid employee for hours worked above 40 in any given week are 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 overtime paid and the total number employees who received overtime pay. Click here for more information.

In FCA, you will need to set up a new Pay Item for the exempt overtime pay. Use this item ONLY for the exempt overtime Alabama wages. At this time, you will go back to the original Overtime Pay item for checks issued on or after July 1, 2025

Select Setup>Payroll Items.

Enter a Lookup and Description that indicates this is the exempt overtime.

Select Hourly in the Pay Type drop-down.

Select Regular in the Pay Class drop-down.

Enter 1.5 in the Pay Factor field.

Select the appropriate Expense Account.

Select AL Exempt OT in the W2 Tracking drop-down. This will automatically check the SWH box in the Exempt From section.  All amounts posted to this item will be reported as exempt wages as required for the 2024 withholding forms.

Leave the W2 Code blank.

Do not enter a Rate.