Alabama Overtime Exemption W-2 Reporting
Alabama’s temporary overtime pay exemption law (effective until June 2025) introduces tax relief for overtime wages at the state level.
Alabama’s law impacts both hourly and nonexempt salaried employees. Understand how Alabama’s overtime exemptions will appear on W-2 forms.
Key differences in AL overtime taxation
Alabama’s law exempts overtime wages from state income tax, but the start date of this exemption differs:
- Hourly employees: The exemption began on January 1, 2024. All overtime wages for hourly employees earned in 2024 are exempt from state taxation.
- Nonexempt salaried employees: exemption began on October 1, 2024, after the original law was amended to include nonexempt salaried employees. Overtime earned by nonexempt salaried employees up to September 30, 2024, remains taxable at the state level, while overtime earned on or after October 1, 2024, is exempt.
Note: Alabama’s overtime tax exemption only applies to state tax. Federal taxes still apply to all overtime wages. Continue reporting all wages, including overtime, in Box 1 for Federal taxable wages.
To read more about the Alabama overtime exemption laws and amendment please check out our blog article, “Alabama Overtime Tax Law: Tax Break for Employees, Required Reporting for Employers.”
Examples of Alabama overtime exemptions reported on Form W-2
Box 1 (Federal Wages): Includes all wages, including overtime, for both federal taxation and Social Security/Medicare (up to the Social Security wage base.)
Box 16 (Alabama State Wages): Reflects all wages minus exempt overtime wages:
- Hourly employees’ overtime is excluded for the entire 2024 year
- Nonexempt salaried employees’ overtime is excluded only from October 1, 2024, onward
Box 14 (Other): The amount of overtime wages exempt from Alabama state tax. Patriot will label these as “AL EX OT” for easy identification.
Example 1: AL Hourly employee: Earned $40,000 regular wages and $5,000 overtime.
- Box 1 (Federal Wages): $45,000
- Box 16 (State Wages): $40,000
- Box 14 (Other): AL EX OT – $5,000
Example 2: AL Nonexempt salaried employee: Earned $60,000 regular wages and $5,000 overtime ($3,000 before October 1, $2,000 after.)
- Box 1 (Federal Wages): $65,000
- Box 16 (State Wages): $63,000 (excludes the $2,000 earned after October 1)
- Box 14 (Other): AL EX OT – $2,000
Verify employee payroll information in Patriot
There are two ways to preview Alabama overtime wages in the software:
1. Using the Payroll Details Report
You can view employee payroll totals by using the Payroll Details report.
Go to Reports > Payroll Reports > Payroll Details.
Select the following:
- Date range: Start date: 1/1 and End Date: 12/31
- Employee Select all
- Sources: Select all
- Group by: Employee
Click “Run Report.”
See our help article about the “Payroll Details Report” for more information.
2. Using the Preview W-2 Report
You’ll be able to preview the employee W-2s before creating a final version and distributing them to employees.
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