The Alabama House of Representatives on Tuesday passed House Bill 527 by Representative James Lomax, R-Huntsville, which would eliminate up to $1,000 in state income tax on qualified overtime pay. Representative Mike Shaw, R-Hoover, offered an amendment to include a 60-day grocery tax holiday.
House Bill 527 creates an income tax deduction for qualified overtime compensation. Lawmakers designed the bill after President Donald Trump’s “no tax on overtime” policy included in the “Big Beautiful Bill” by providing state-level tax relief on overtime pay in the form of a capped tax deduction.
Under the bill, taxpayers could deduct up to $1,000 in overtime pay from their state taxable income each year. The deduction would apply to tax years beginning in 2026 and expire after 2028 unless extended. The initial fiscal note for House Bill 527 was $37.4 million. Shaw’s amendment raises the total fiscal note to $83.4 million.
Lomax said the bill offers a practical solution to easing financial burdens facing working families in Alabama.
“Everyone knows that Alabama is one of the lowest taxed states in the nation, but as a member of the House, working to ensure our state remains a place working families keep as much of their hard-earned money as possible will always be a top priority,” Lomax said. “The men and women working overtime shifts to provide for their families are also providing a significant boost to our state’s economy, and I am proud to carry this legislation in an effort to support and thank them.”
In 2023, the Alabama Legislature reduced the state’s tax on groceries from 4 percent to 3 percent and established a path toward its full elimination. During the 2025 legislative session, the House voted to accelerate the elimination of the grocery tax by cutting it from 3 percent to 2 percent as a key component of a broader effort to address affordability concerns across the state.
“Throughout not only this session but the entire quadrennium, members of the House and Senate have consistently worked to lighten the financial load that working families are feeling across the state,” House Speaker Nathaniel Ledbetter said. “With fuel prices surging and the price of beef and other essential items at the grocery store nearing all-time highs, it is imperative that state leaders double down on our efforts to lend a helping hand to Alabamians. Over the course of the last few weeks, I have worked with Governor Ivey and Senate leadership to determine the most expedient and impactful way to provide targeted relief, and we have determined that a 60-day grocery tax holiday presents the best opportunity to lift up every single Alabama family.”
Alabama families already save roughly $236 a year from the existing 2 percent grocery tax cut, and a temporary two-month suspension of the remaining 2 percent would deliver about $40 more in immediate relief for a typical family of four, according to a House press release.
Since 2022, the Alabama Legislature has delivered more than $1.4 billion in tax cuts to working families and retirees across the state.
A detailed list of cuts is below:
- Act 2022-37/2022-75 (House Bill 231, Senate Bill 152)—Child Tax Credit Exclusion—$90 million
- Act 2022-53 (House Bill 82)—Small Business Relief—$4.4 million annually
- Act 2022-294 (House Bill 162)—Retirement Income Tax Cut—$29 million annually
- Act 2022-297/2022-292 (House Bill 163, Senate Bill 19)—Dependent Exemption Increase—$17.2 million annually
- Act 2022-252 (House Bill 391)—Business Privilege Tax Cut—$23 million annually
- Act 2022-298 (House Bill 253)—EMS Tax Credit—$3.6 million annually
- Act 2022-299 (House Bill 487)—Adoption Tax Credit Expansion—$3.8 million annually
- Act 2023-377 (Senate Bill 86)—One-Time Tax Rebate—$393 million
- Act 2023-421 (House Bill 217)—Overtime Tax Exemption—$230 million
- Act 2023-554 (House Bill 479)—Grocery Tax Cut (Phase 1)—part of $246 million total
- Act 2024-21 (House Bill 129)—CHOOSE Act (Education Tax Credits)—$530 million (3-year total)
- Act 2024-400 (House Bill 51)—Hearing Instrument Tax Exemption—$3.1 million annually
- Act 2024-344 (House Bill 73)—Property Tax Cap—$275,000 annually
- Act 2024-170 (House Bill 209)—Military Pay Tax Exemption—$2.1 million annually
- Act 2025-305 (House Bill 386)—Grocery Tax Cut (Phase 2)—part of $246 million total
- Act 2025-204 (House Bill 152)—Pink Tax Cut—$13 million annually
- Act 2025-204 (House Bill 543)—Business TPP Tax Exemption Increase—$3.6 million annually
- Act 2025-402 (House Bill 52)—ABLE Extension + CHOOSE Act Expansion—included in $530 million total
