Beginning Jan 1, 2024, overtime pay received by a full-time hourly employee for hours worked above 40 in a given week is excluded from gross income, and is therefore exempt from Alabama state income tax.
- The overtime pay exemption is in effect from Jan 1, 2024–Jun 30, 2025. Taxation of overtime wages resumes on Jul 1, 2025 (per current legislation, subject to change).
Tied with this exemption are employer reporting requirements to the AL Department of Revenue (DOR). Employers are required to:
- Report the total aggregate amount of overtime paid, and;
- Report the total number of employees who received overtime pay.
While Gusto will handle this for 2024 and beyond, you'll need to submit a one-time report with historical 2023 overtime data by Jan 31, 2024 (outside of Gusto)—we'll walk you through how to do this below.
You can find additional information about the Overtime Exemption here. For any questions about the tax or the requirements, email the AL DOR at [email protected].
Action required by Jan 31, 2024—submit your Report of Historical 2023 Overtime Data directly to the agency
You must submit your one-time “Report of Historical 2023 Overtime Data” directly to the AL DOR by Jan 31, 2024. You'll need to wait until the agency has received your 2023 end-of-year forms before submitting this report—Gusto expects our end-of-year filings to be received by the agency on Jan 17.
A few reminders:
- You’re still required to report, even if you didn’t have any overtime wages in 2023.
- While we do not support the historical 2023 reporting requirement, we’ll fulfill all monthly and quarterly reporting requirements for 2024 and beyond.
You can run two reports in Gusto that’ll fulfill the 2023 Overtime Data report requirement, learn how to run each below.
Generate a report with the “total aggregate amount of overtime paid” in 2023 -
Sign in to your admin account in Gusto.
- Head to the Reports section.
- Find the “Payroll journal” report, and click into it.
- This report is typically accessible in the“Frequently used” section at the top of the page.
- Make the following selections:
- “Report sections”: Choose Summary only from the dropdown.
- “What would you like this report to contain?” Select the below:
- Employee earnings breakdown
- Employee Tax Breakdown
- Detailed totals
- When and who should be included?
- Date range: Annually
- Year: 2023
- Select employees: Hourly employees
-
Important: This report includes all hourly employees—you’ll need to manually exclude wages from non-full time hourly employees.
- How would you like this data grouped?
- Select your preferred report format (either CSV or PDF)
- Click Generate report.
To read the report, scroll to the Alabama section and reference the ‘Totals’ section. Overtime totals appear in different locations based on you downloaded the report:
- On a PDF: Look for the Total of the “Overtime” column.
- This column won’t exist if there was no overtime—employers are still required to report even when no overtime wages exist.
- On a CSV: Look for the “Overtime (Amount)” column.
A few reminders
- Paid time off and holiday pay should not be included when determining the hours worked in excess of 40 hours; this type of pay is not considered as hours worked.
- The withholding exemption does not apply to commissions and bonuses paid in addition to an hourly wage.
- We recommend double-checking your overtime wages and employee counts against your personal company records, or a previous payroll provider's if needed.
- If you entered historical payrolls when you onboarded with Gusto, overtime wages were not separated, so you’ll have to reference the original wage reports to find them.
Generate a report with the “total number of employees who received overtime pay” in 2023. -
Sign in to your admin account in Gusto.
- Head to the Reports section.
- Find the “Payroll journal” report, and click into it.
- This report is typically accessible in the“Frequently used” section at the top of the page.
- Make the following selections:
- “Report sections”: Choose Summary only from the dropdown.
- “What would you like this report to contain?” Select the below:
- Employee earnings breakdown
- Employee Tax Breakdown
- Detailed totals
- When and who should be included?
- Date range: Annually
- Year: 2023
- Select employees: Hourly employees
- Important: This report includes all hourly employees—you’ll need to manually exclude wages from non-full time hourly employees.
- How would you like this data grouped?
- Select your preferred report format (either CSV or PDF)
- Click Generate report.
To determine the “Number of Employees with Overtime Wages”, you’ll need to manually count the full-time employees who had overtime wages subject to AL withholding taxes—look for AL income tax in the “Employee taxes” section.
Use the AL DOR’s FAQ resource to determine which types of hourly employees to include.
A few reminders
- If you run payroll in multiple states, do not count employees who were subject to another state’s withholding, unless they also had AL state income tax withheld.
- We recommend double-checking your overtime wages and employee counts against your personal company records, or a previous payroll provider's if needed.
- If you entered historical payrolls when you onboarded with Gusto (or any non-Gusto payroll), overtime wages were not separated, so you’ll have to reference the original wage reports to find them.
Submit your Report of Historical 2023 Overtime data by Jan 31, 2024 You must submit your one-time “Report of Historical 2023 Overtime Data” directly to the AL DOR by Jan 31, 2024. You'll need to wait until the agency has received your 2023 end-of-year forms before submitting this report—Gusto expects our end-of-year filings to be received by the agency on Jan 17.
You can report the following information to the AL Department of Revenue in one of two ways: from your agency portal, or by email.
- The total aggregate amount of overtime paid, and;
- The total number of employees who received overtime pay.
Use your My Alabama Taxes account to send a message with historical overtime info
-
Sign in to your My Alabama Taxes account.
- Send a message through the portal with the two pieces of information from the reports.
An agent from the DOR will review your message and help update your account.
Email the agency directly
Email [email protected] with:
- Your AL withholding tax account number, and;
- The historical 2023 overtime pay information.
- Follow the instructions above to generate the two reports that'll get you the information the agency needs.
2024 reporting requirements—no action needed, Gusto handles these There is no action needed from you for 2024 reporting.
Beginning 2024, Gusto will send monthly/quarterly reports to the AL DOR that include:
- The aggregate amount of overtime paid during the period (month/quarter).
- The total number of full-time hourly employees who received overtime pay.
This information gets submitted along with your “Withholding Tax Return”, there won’t be an additional report to look for.