Alabama House attaches grocery tax holiday to overtime pay deduction bill

What came to the floor of the Alabama House of Representatives Tuesday as an overtime tax deduction bill left as an overtime tax deduction bill with a grocery tax holiday attached.

HB 527, sponsored by Rep. James Lomax, R-Huntsville, passed the chamber on a 100-0 vote. As filed, the bill allows individuals to deduct up to $1,000 of qualified overtime compensation.

“We modeled this legislation on what they do at the federal level,” Lomax said during debate. “They allow for income tax deductions that you’d do on your tax filing. It’s just very clean that way and it allows the workers something that they can check a box off at the end of the year.”

In 2023, an overtime tax deduction bill sponsored by House Minority Leader Anthony Daniels, D-Huntsville, passed unanimously. That bill sunsetted in June 2025.

Last year Daniels had a bill that would have removed the sunset clause in the bill, but the legislation did not make it to the House floor for a vote.

But much of the debate revolved around an amendment to the bill sponsored by Rep. Mike Shaw, R-Hoover, which would suspend the 2% state tax on groceries from May 1 to June 30.

“Typically lowering taxes is always something that we should be moving towards if we have the opportunity to,” Shaw said on the House floor. “But what I keep hearing about is grocery tax.”

The bill would not affect local grocery taxes. Alabama is one of a handful of states that taxes groceries. The Legislature reduced the levy on groceries from 4% to 3% in 2023, and from 3% to 2% last year.

House Democrats largely supported the bill but said they had been working to eliminate the grocery tax for several years.

“We started with the food tax with [Former Rep.] John Knight, [D-Montgomery], and we fought very vigorously, and we still believe this is the way to go,” Rep. Barbara Drummond, D-Mobile, said during debate.

Rep. Penni McClammy, D-Montgomery, who has a bill that would eliminate the state sales tax on groceries, accused Republicans of bringing up the proposal due to elections this year.

“Why is this not something that we continuously pass, that we continuously do?” McClammy asked during the debate. “Let’s just call it out here, that we seem to care so much about pausing [the grocery tax] when it’s time for a campaign.”

Daniels took issue with the timing of the newly-proposed tax holiday.

“Do you think that the date should be made for June 1 through August 1? Because that’s when kids are getting out of school,” Daniels said. “The family’s grocery bill just increased during that particular time and the items they purchased don’t have the shelf life to last through the Summer.”

Rep. Marilyn Lands, D-Huntsville, offered two amendments to extend the overtime tax deduction. Lomax said the amendments would be damaging to the Education Trust Fund.

If passed the overtime tax deduction would go into effect on Oct. 1 and the grocery tax exemption would go into effect immediately.

There are five days left in the 2026 legislative session. The bill moves to the Senate.