A first-in-the-nation tax policy will go into effect on January 1, 2024 that eliminates the state’s 5% portion of taxes collected on overtime work. All full-time, hourly workers working more than 40 hours per week are eligible.

Alabamians working the hardest will keep more of their paycheck, State Rep. Anthony Daniels (D-Huntsville) told lawmakers when he proposed the idea earlier this year. In a legislative session with tax relief on the minds of lawmakers, Daniels’ cut made the cut.

“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.

“It’s basically a 5% pay raise every hour. It makes good sense for working people in Alabama.”

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Daniels joined Governor Kay Ivey and state business leaders at the Hyundai Motor Manufacturing facility in Montgomery to celebrate the enactment of the policy. 

“Hardworking Alabamians who go over and above in their efforts deserve to be rewarded, but far too often, extra pay from a job well done is eaten away by income taxes,” Business Council of Alabama’s President and CEO Helena Duncan said. 

“Exempting overtime pay from taxes provides added incentive, recognizes hard work, and creates more pocket dollars for Alabama workers and families.”

No other states exempt overtime income from taxes. 

Republican lawmakers ushered Daniels’ bill through the legislature earlier this year, citing its innovative, pro-growth benefits. Both chambers worked on the bill and sent it to Gov. Ivey’s desk, pleased with the efforts they had taken to analyze the potential impact on the revenue generated by the tax toward the state’s education trust fund. 

RELATED: Un-tax overtime income? Lawmakers like the idea

“This is one of the more intriguing proposals that has come before us in a while. All of us are scratching our heads and asking ‘who else is doing this?’ And the answer is no one,” Education Trust Fund committee chairman Rep. Danny Garrett (R-Trussville) said when the bill came before his committee. 

“This would be a first for Alabama,” Garrett said. 

Beginning on the first day of 2024, hourly workers in Alabama who work more than 40 hours will find their paycheck looking healthier than before. 

Grayson Everett is the state and political editor for Yellowhammer News. You can follow him on Twitter @Grayson270