States / Alabama
AL state income tax · checked October 14, 2026
Does Alabama tax tips and overtime?
Alabama taxes tips. For 2026 through 2028 it has its own overtime deduction of up to $1,000, not the federal one.
| Alabama return | Tips | Overtime |
|---|---|---|
| 2025 | Taxed | Own smaller break |
| 2026 | Taxed | Own smaller break |
The details
Alabama doesn’t follow the federal tips or overtime deductions. Tips stay fully taxable on the Alabama return.
HB 527, signed in April 2026, created a separate Alabama deduction for qualified overtime compensation of up to $1,000 for tax years 2026 through 2028. For 2025, Alabama’s older state rule exempted overtime pay earned January 1 through June 30, 2025; overtime after June 30, 2025 was taxable.
The federal deductions apply either way. See who qualifies for no tax on tips, how the overtime deduction works, and where both go on Schedule 1-A.
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Questions
Does Alabama tax tips in 2026?
For 2026, Alabama taxes tips in full.
Does Alabama tax overtime in 2026?
For 2026, Alabama gives its own, smaller break on overtime instead of following the federal deduction.
What about my 2025 Alabama return?
For 2025, Alabama taxes tips in full. For 2025, Alabama gives its own, smaller break on overtime instead of following the federal deduction.
Does the federal deduction still apply?
Yes. Whatever your state does, you can still claim the federal deductions on Schedule 1-A if you qualify: up to $25,000 of qualified tips per return and up to $12,500 of qualified overtime ($25,000 joint), phasing down above $150,000 of MAGI ($300,000 joint).