Bill review: Alabama HB527 Overtime Compensation Deduction (AL)

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Bill Review: Alabama HB527 Overtime Compensation Deduction

Reform ID: al-hb527 | State: AL
Bill text: https://alison.legislature.state.al.us/files/pdf/SearchableInstruments/2026RS/HB527-int.pdf
Sponsor: Rep. James Lomax (R-Huntsville)

Description: Alabama HB527 creates a state income tax deduction of up to $1,000 per taxpayer per year for qualified overtime compensation (the premium portion of overtime pay). Joint filers can each claim up to $1,000. The deduction is effective for tax years 2025-2027.

Merging this PR will publish the bill to the dashboard.

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What we model

Provision	Parameter	Current	Proposed
Overtime Compensation Deduction	gov.contrib.states.al.hb527.in_effect	No state overtime deduction	Up to $1,000 per taxpayer per year
Sunset Provision	gov.contrib.states.al.hb527.cap	N/A	Expires after tax year 2027

Validation

External estimates

Source	Estimate	Period	Link
Alabama Legislative Fiscal Office	-$37.4M	Annual	Alabama Daily News
Affected Workers	~800,000	-	Same source

Back-of-envelope check

800,000 workers × $50 max tax savings (5% rate × $1,000 cap) = $40M
This aligns closely with the fiscal note estimate of $37.4M.

PE vs External comparison

Source	Estimate	vs PE	Difference
PE (PolicyEngine)	-$8.2M	—	—
Fiscal note	-$37.4M	-78%	Review needed
Back-of-envelope	-$40M	-80%	Review needed

Verdict: PE estimate is significantly lower than the fiscal note. This is likely due to:

1. CPS data limitations: The Enhanced CPS uses hours_worked_last_week which may not fully capture overtime work patterns
2. Sample size: The CPS may undercount overtime workers relative to administrative data
3. Fiscal note methodology: The state estimate assumes 800,000 affected workers, which may include workers not well-represented in CPS microdata

Note: Alabama's previous unlimited overtime exemption (2023-2025) cost $350M vs $34M projected — a 10x overrun — suggesting fiscal estimates for overtime provisions may have high uncertainty.

Parameter changes

Parameter	Period	Value	Bill Reference
gov.contrib.states.al.hb527.in_effect	2025-01-01 to 2027-12-31	true	Section 40-18-15(a)(29)
gov.contrib.states.al.hb527.cap	2025-01-01 to 2027-12-31	1000 ($1,000)	Section 40-18-15(a)(29)

Key results

Metric	Value
Revenue impact	-$8,168,505
Poverty rate	27.95% → 27.95% (0.0%)
Child poverty rate	21.67% → 21.67% (0.0%)
Winners	2.3%
Losers	0.0%

Reform parameters JSON

{
  "gov.contrib.states.al.hb527.in_effect": {
    "2025-01-01.2027-12-31": true
  },
  "gov.contrib.states.al.hb527.cap": {
    "2025-01-01.2027-12-31": 1000
  }
}

Versions

• PolicyEngine US: 1.591.1
• Dataset: 1.48.0
• Computed: 2026-03-23

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