Inactivate Alabama overtime exemption July 1, 2025

Summary

Alabama's law that exempted certain overtime wages from state income tax expired on June 30, 2025. This means that as of July 1, 2025, Alabama employers will need to withhold state income tax from overtime wages paid to non-exempt employees. 

Resolution

Important Information   

  • The state's exemption for overtime expires on June 30, 2025
  • Employers will report overtime wages paid between January 1 and June 30,2025 in Box 14 of Form W-2
  • For additional information, see the official Alabama Department of Revenue announcement

To stop the overtime calculation

  1. Go to PR, Utilities, Maintain Other Pays.
  2. Select the Alabama Overtime Exemption other pay.
  3. In the Active field, select From and enter 01/01/2025 to 06/30/2025.
  4. Click Save.
    Alabama Overtime Exemption. How to set the active fields on the Other Pay.

To verify the Alabama Overtime Exemption for W-2s

  1. Go to PR, Reports, Other Pay Reports, Period Activity.
  2. For the report, select Other Pay Activity - Detail by Employee ID.
  3. In the Other Pay field, select your Alabama Overtime Exemption.
  4. In the Reporting period, select Specific dates. Enter 01/01/2025 to 06/30/2025.
  5. Preview or print the report. This will show all the Overtime Exemption for 2025.  
    Other Pay Report. Select Alabama Overtime Exemption for 2025 W-2s.

End Alabama Overtime Exemption after 06/30/2025

  1. Go to PR, Reports, Other Pay Reports, Period Activity.
  2. For the report, select Other Pay Activity - Detail by Employee ID.
  3. In the Other Pay field, select your Alabama Overtime Exemption.
  4. In the Reporting period, select Specific dates. Enter 07/01/2025 to 12/31/2025.
  5. Preview or print the report.
  6. If any amounts show on the report, Box 14 and Box 16 of the W-2 will be incorrect.
    • Contact your CPA for advice on editing the W-2 amounts
▼ Original set up instructions for Alabama Overtime Exemption

Before you begin

  • Keep a manual spreadsheet of the employee OT exempt hours and OT exempt pay amount
  • Using Payroll with Job Cost? Other pays entered on the time cards don’t post to Job Cost
    • This is because there are no task codes associated with other pays
    • You’ll post these into Job Cost manually

Setup Other Pay for Alabama SWT exempt overtime wages

  • Go to PR, Utilities, Maintain Other Pays and create an other pay called ALOTEXPT
    • Method: Variable, entered on time card
    • Category: Individual
    • Debit account: Consult with your CPA for suggestions
    • Taxable Status: Deselect SWT taxable and leave all other tax items selected 
      Image
    • Save the Other Pay

Add the Other Pay to the employee

  • Go to PR, Employees, Maintain Employees, select each employee that has exempt overtime and add the other pay
    • Select Other pays…
    • In the ID field, enter ALOTEXPT
    • Click Accept
    • Click OK
    • Click Save

Process payroll using the Other Pay for Alabama SWT exempt overtime wages

  1. PR, Processing, Time Card Entry.
    • Enter your time card using any regular pay, sick pay, vacation, regular overtime, deductions or other pays
    • To add exempt overtime, for earnings select the Other Pay: ALOTEXPT
    • Manually calculate the overtime hours worked x overtime rate to obtain the exempt OT total. Enter this amount for gross pay
      Keep a manual spreadsheet of the employee OT exempt hours and OT exempt pay amount
      •  To track exempt overtime hours on the time card/check stub
        • In the Earnings drop-down, select an unused Overtime option
        • Enter the overtime hours and $0.00 for the Hourly rate
    • Save time card
  2. Process pay checks.
    • PR, Processing, Automatic Payroll Calculation
    • PR, Processing, Print Payroll check
  3. For all checks that require OT Exempt pay you’ll use the new Other Pay. Then manually track the hours and wages in a spreadsheet.

Alabama OT Exempt Reporting
If you need a report for the SWT exempt overtime go to Payroll, Reports, Other Pay Reports. Then select Period Activity, Other Pay Activity Summary by Employee ID.

 

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Solution Properties

Solution ID
231215002500980
Last Modified Date
Thu Aug 28 18:01:08 UTC 2025
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