Governor Kay Ivey signed House Bill 527 on Wednesday, putting into law two moves aimed at easing costs for Alabama families—one tied to overtime pay, the other to what people pay at the grocery store.
Overtime deduction returns with new limits
In 2023, Alabama lawmakers approved a temporary tax exemption for overtime pay for eligible hourly workers, excluding overtime earnings from state income tax. The policy took effect in 2024 and ran through June 30, 2025. When it expired, overtime wages reverted to normal state tax treatment.
From tax years beginning after December 31, 2025, through December 31, 2028, Alabama taxpayers can subtract up to $1,000 of qualified overtime pay from their Alabama taxable income.
The bill defines qualified overtime compensation as overtime pay required under federal law that exceeds an employee’s regular rate of pay.
It also makes the deduction available whether or not a taxpayer itemizes.
Sort of straightforward, in a way, but it matters for people who don’t itemize—because, you know, not everybody does.
When the legislation was considered in the House, Representative Marilyn Lands, D-Huntsville, proposed two separate amendments that would have raised the amount of qualified overtime compensation eligible for an income tax deduction to $5,000, then to $2,500.
Lomax moved to table each amendment individually, and the House affirmed both motions.
Actually, the grocery piece is the one many people will feel right away. Still, the overtime deduction is the part that stretches out over a longer window.
State sales tax pause on groceries
“I am also glad we are able to put a two month pause on the state’s portion of the grocery tax to help families across Alabama. Any time we can responsibly provide some relief for the hardworking people of our state, I am all for it,” said Ivey.
Food eligible for the suspension is defined under existing Alabama law and generally includes items purchased for home consumption.
The suspension does not change the local authority to levy sales taxes.
So it’s not a full wipeout—more like a state-level pause layered over local rules.
For what it’s worth, the smell of fryer grease and the murmur of carts in a typical grocery aisle can’t be legislated, but pricing at the register can.
Lomax said the bill provides a “meaningful, direct tax relief” by delivering savings at the grocery store and “rewarding hardworking Alabamians” through the overtime deduction.
He pointed to the combination as a way to put money back into families’ pockets “when they need it most.” HB527 cleared both chambers with broad support before reaching the governor’s desk, and then—Wednesday—ended up on Ivey’s signature line.
And I guess that’s the part people will remember first: two months at least, and after that, the next question becomes what happens in the budget cycle from there, if anything.
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