dbeard@dominionpost.com
MORGANTOWN – Following the lead of President Trump, state senators are considering a bill to exempt overtime pay from personal income tax.
The Senate Workforce Committee OK’d SB 6010 on Monday and sent it to Senate Finance.
The exemption would begin in the 2026 tax year. A Tax & Revenue Department fiscal note with the bill estimates tax revenue loss ranging from $70 million to $100 million.
Deputy Revenue Secretary Mark Muchow told the committee that Alabama was the first state to try this, with a temporary exemption set to run from January 2024 through June of this year. Alabama had to modify the exemption after actual looses far exceeded the estimates.
News reports from Alabama say the fiscal note with its original bill estimated a loss of $45 million, and supporters foresaw the loss to be made up through increased consumer spending.
Muchow said that after nine months, Alabama’s revenue loss topped $230 million, so the law was amended to only apply to workers covered by the Fair Labor Standards Act.
The FLSA, according to the U.S. Department of Labor, “establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state, and local governments.”
If Congress passes a federal overtime exemption law, Muchow said, the Legislature would need to update state code next year to conform to the federal one. The legislature annually passes legislation to conform state code to federal code.
Sen. Scott Fuller, R-Wayne, raised the issue of workers who receive comp time off instead of overtime and asked Muchow what would happen in those instances.
Muchow said that’s one factor that could raise the cost of the bill, along with salaried workers who press their employers to switch them to hourly, and workers who press their employers for more overtime.
Two issues not discussed in committee were the $400 million revenue shortfall projected by the governor for next fiscal year, and a House bill – HB 2139 – to exclude income from tips from personal income tax. That bill is sitting in House Finance and is estimated to cost the state about $5 million.
