Committee cuts proposal to exempt overtime pay from income tax

MONTGOMERY, Ala. (AP) — A legislative committee on Wednesday gutted a proposal to exempt Alabama workers’ overtime pay from state income taxes after concerns arose about the potential loss to the education budget.

The state House of Representatives had unanimously approved the legislation that would exempt all overtime from the calculation of gross income for state income tax purposes. The Senate Finance and Taxation Education Committee amended the bill so only the first $2,000 of overtime pay would be exempted. The state income tax is 5%.

Finance and Taxation Chairman Arthur Orr expressed concern about the budget impact since lawmakers are also eyeing other tax cuts. The original bill would have cost the state a projected $45 million annually, but that would drop to $21 million with the change, according to estimates from the Legislative Services Agency.

“I want to move slowly,” Orr, R-Decatur said. “We’ve made a lot of decisions when it comes to tax cuts and tax credits.”

House Minority Leader Anthony Daniels, the sponsor of the legislation, said he did not support the change. Daniels had argued that exempting overtime pay would allow working people to keep more of their pay. He said it would also help businesses entice workers to overtime shifts.

The exemption would end in three years unless extended by lawmakers.

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