Alabama House Bill HB665

Alabama 2026 Regular Session

• Introduced: 4/2/26
• Refer: 4/2/26

Caption

Taxation; to amend 40-18-14, Code of Alabama 1975, relating to overtime compensation.

Impact

If enacted, HB665 will have significant implications for state income tax laws by permanently excluding overtime pay from gross income calculations for tax purposes. This change aims to align Alabama's tax treatment with federal law concerning overtime compensation, encouraging financial benefits for working individuals who regularly exceed the 40-hour workweek. The economic impact study required by the bill will also be instrumental in evaluating changes in revenue collection, potentially affecting the state's budget and funding allocation for public services.

Summary

House Bill 665 seeks to amend Section 40-18-14 of the Code of Alabama to reinstate an exemption for overtime compensation from income tax beginning with the 2027 tax year. Under existing law, overtime compensation was excluded until June 30, 2025, and this bill aims to extend the exemption. Supporters argue that this amendment will benefit workers by increasing take-home pay for those earning overtime, thereby enhancing their economic stability. The bill also mandates that the Department of Revenue and the Alabama Commission on the Evaluation of Services conduct an economic impact study to assess the exemption's effects.

Contention

Debate surrounding the bill may emerge from differing perspectives on its economic implications. Critics could argue that while the bill supports workers financially, it might reduce the state’s tax revenues and complicate the funding of public services reliant on income tax. Additionally, the requirement for an economic impact study illustrates the need for transparency regarding the bill's fiscal ramifications, as stakeholders may be concerned about long-term effects on state funding and services. Overall, the reinstatement of the exemption could spark discussions on balancing employee benefits with state financial health.