MONTGOMERY, AL — Governor Kay Ivey signed House Bill 527 into law, establishing a new income tax deduction for qualified overtime compensation.
The legislation, sponsored by James Lomax and carried in the Senate by Arthur Orr, allows eligible taxpayers to deduct up to $1,000 in overtime pay from their state income taxes. The deduction will apply to tax years 2026 through 2028.
As previously reported, the law also includes a two-month suspension of the state’s grocery tax, scheduled to take effect from May 1, 2026, through June 30, 2026.
Governor Ivey said the measure is intended to provide financial relief while recognizing the contributions of Alabama workers.
“Alabamians are the best workers out there. I applaud Rep. James Lomax and Sen. Arthur Orr for working with us to provide tax relief to those employees putting in overtime,” Ivey said. “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 in our state, I am all for it.”
Representative Lomax described the legislation as a way to deliver direct savings to residents across the state.
“HB527 provides meaningful, direct tax relief by delivering real savings at the grocery store for all families and rewarding hardworking Alabamians by recognizing the value of overtime work,” Lomax said. “By creating a deduction on overtime pay and temporarily suspending the state sales tax on food, this legislation puts money back into the pockets of families when they need it most.”
Senator Orr emphasized the broader economic goals of the measure, noting its potential to ease financial pressures while encouraging workforce productivity.
“I want to commend my colleagues in the Legislature for passing legislation that provides hardworking Alabamians with well-deserved tax relief on overtime pay, as well as some temporary tax relief at the grocery store that will benefit families across the state,” Orr said. “This reflects a strong commitment to easing the financial burden on Alabama families while encouraging productivity and economic growth.”
HB527 takes effect with the grocery tax suspension beginning May 1, 2026, followed by the overtime income tax deduction starting with the 2026 tax year.
