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No Tax on Overtime in Alabama

2%–5%

Alabama applies the deduction to its own tax as well, up to $1,000 of the premium, but its deduction for federal tax shrinks with your federal bill and eats that saving.

On $5,951 of overtime premium

You save $1,107, but Alabama takes back $253

Worked on Alabama's own average wage ($64,473, about $31/hour per BLS) with 8 overtime hours a week for 48 weeks. The OBBBA deduction cuts your federal tax; Alabama deducts part of the premium but taxes the rest. Alabama lets you deduct federal income tax, and the overtime deduction shrinks your federal bill, so that deduction shrinks too: net, $5 more Alabama tax. FICA is never touched: $455 of Social Security and Medicare on those hours.

Alabama keeps 23.0% of what the federal deduction gives back.

What the new federal overtime deduction actually saves you — and what it does not.

2025–2028

Federal tax saved: $1,183. FICA still owed on that overtime: $1,234.

Federal tax saved
per year, at filing
$1,234FICA still owed on it
7.65% of your overtime — the deduction does not touch it

Of your $16,128 overtime pay a year

  • $12,675You keep78.6%
  • $1,539Federal9.5%
  • $1,234FICA7.7%
  • $679State4.2%
Enter your overtime
Filing status
Overtime pay for the year (gross)
$16,128
Qualifying premium (the half of time-and-a-half)
$5,376
Deduction applied (Schedule 1-A)
$5,376
Federal tax without the deduction
$7,531
Federal tax with the deduction
$6,348
Take-home for the year
$59,220

Estimates only. Not tax or legal advice. Consult a professional. Models FLSA time-and-a-half: the deductible premium is half your regular rate per overtime hour, capped and phased out per Schedule 1-A.

How the split moves with your overtime

Single filer on $64,473 of straight-time pay in Alabama, tax year 2026. The last row is the deduction cap.

Overtime premiumFederal savingAlabama savingAlabama taxFICANet benefit
$2,000$240$38−$50−$153$228
$4,000$677$16−$150−$306$543
$6,000$1,117$0−$256−$459$861
$8,000$1,557$0−$378−$612$1,179
$12,500$2,547$0−$652−$956$1,895

Applies Alabama's 2026 treatment, which allows the deduction on its own return up to $1,000. The Alabama tax column includes the extra tax from Alabama's deduction for federal income tax, which shrinks with your federal bill. Informational estimate, not tax advice.

Overtime and OBBBA in Alabama

Does Alabama tax my overtime in 2026?
Only above its cap. Alabama allows the OBBBA deduction on its 2026 return up to $1,000, so that part of the premium also comes off your Alabama tax; federally you save $1,107. Alabama still taxes $248 on the premium above its cap. Alabama lets you deduct federal income tax, and the overtime deduction shrinks your federal bill, so that deduction shrinks too: net, $5 more Alabama tax.
So is overtime actually tax-free?
Not quite, and the name oversells it. The deduction covers only the PREMIUM half of time-and-a-half, caps at $12,500 for a single filer, phases out above $150,000 of income, and never touches FICA: in this example you pay $455 in Social Security and Medicare on those hours regardless.
What do I actually save in Alabama?
On $64,473 of straight-time pay plus $5,951 of overtime premium: $1,107 off your federal bill, less $253 that Alabama takes ($248 on the premium and $5 as its deduction for federal tax shrinks). Real net effect of the deduction: $854.
Where does this show up on my W-2?
Your employer reports qualified overtime in W-2 box 12 under code TT. That figure is what carries to Schedule 1-A; if the box is empty, ask your employer to correct it before you file.

Compare with nearby states

Mississippi 4%Georgia 4.99%Tennessee no taxKentucky 3.5%Florida no taxAll states

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