(MENAFN- ValueWalk) Starting next year, hourly workers in Alabama will get more pay, thanks to a new bill signed into law by Gov. Kay Ivey last week. Specifically, the new bill exempts state income tax on overtime pay to offer tax relief to Alabama hourly workers. This first-in-the-nation tax policy will go into effect on Jan. 1, 2024.
Tax relief to Alabama hourly workers: what is it?
On Thursday of last week, Gov. Ivey ceremonially signed into law a bill that aims to provide more pay for hourly workers who work overtime. State officials gathered at the Hyundai auto assembly plant in Montgomery to commemorate the new law.
“Alabamians have never been afraid of hard work. When opportunities and sometimes challenges are presented, the citizens of our state roll up their sleeves and get the job done,” Gov. Ivey said.
The new law eliminates the state income tax on overtime pay for full-time hourly workers in Alabama. Effectively, the new tax relief to Alabama hourly workers raises the salary 5% for work over 40 hours a week. The 5% is the state income tax rate.
Alabama House Minority Leader Anthony Daniels (D-Huntsville) is the sponsor of the bill. The bill won support from the Republican majority and passed without a dissenting vote in June. In the Senate, the bill was sponsored by Sen. Sam Givhan (R-Huntsville).
“From a productivity standpoint, it gives the workers an opportunity to make more money without the employer having to actually give a pay raise,” Daniels said in May.
Although the new exemption comes with an expiry date of June 2025, lawmakers can remove the expiration to continue with the exemption. Daniels is confident that the lawmakers will continue with the tax relief to Alabama hourly workers as it will become immensely popular.
More benefits of the new exemption
A fiscal note attached to the bill notes that the new bill will reduce the state revenue significantly.
Daniels, however, argues the tax relief to Alabama hourly workers would at least partly offset the lost revenue as people are likely to spend the extra money they save because of the exemption. Such spending would boost tax revenues at local and state levels, according to Daniels.
Also, Daniels said the bill would eventually benefit businesses by offering workers an incentive for more productivity.
Helen Duncan, president and CEO of the Business Council of Alabama , believes the tax benefit could also help address the labor shortage , an issue more rampant in Alabama than in many other states. The labor participation rate in the state is 57%, which is the third lowest in the country.
Jon Barganier, president and CEO of Manufacture Alabama, notes the new legislation will have a two-fold benefit. Along with encouraging existing employees to work more hours, the new legislation would also attract new employees to get back into the workforce, especially in hourly wage jobs.
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