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Alabama State Income Tax - Overtime Wage Exemption formula

Heather Wylie
Suggested
Posted By

We have clients that have multiple pay types.  The current formula provided in the year end update is only useful if your employees have Regular and Overtime pay types.  However, many of our clients have multiple regular and overtime pay types, for example - if they work in another department - the pay type may be labeled as Reg - Dept#1 and OT-Dept#1 or OutofTown OT and OutofTown Regular.  Has anyone found a formula that will accomodate numerous paytype fields besides just Regular and Overtime?  

Thanks

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    Summary

    Beginning January 1, 2024 overtime wages will be exempt from Alabama State Income Tax.

    Description

    Follow the instructions below to properly configure Sage 50 US in order to hold overtime wages exempt from Alabama State Income Tax.

    Resolution

    At this time, the instructions for this article assume that you have configured your Payroll with the default setup, meaning that for hourly employees, the two pay types for which wages are set are labeled Regular and Overtime. Secondly, that you have installed the 1st January 2024 Payroll Tax Update.

    Note: When the 2nd January Payroll Tax Update is released in January 2024, there will be additional and revised steps to properly calculate the liability for Alabama State Income Taxes for those that have employees with Overtime wages in their payrolls.

    To configure formulas for Overtime employees, follow the steps:

    1. From the File menu, select Payroll Formulas > Sage Maintained.
    2. From the list of payroll formulas, select one of the Alabama State Income Tax formulas labeled ALSIT 24 that contain one of the Filing Statuses that are applicable to one of the employees in your payroll that have Overtime. In other words, each ALSIT 24 formula will need to be updated only if there is an Hourly worker expected to accrue Overtime hours in payroll period beginning in 2024.
    3. Replace the A = variable with the following:
       A = IF(EMP_PAY_STATUS=1, ANNUALIZE(Regular*EMP_SPECIAL4_NUMBER), ANNUAL(ADJUSTED_GROSS));
    4. Click the Save button.
    5. If there are additional Filing Statuses that impact other Overtime employees, repeat and apply the same steps 2-4. After completing the updates for all impacted Filing Statuses, close the window.
    6. From the Maintain window, select Employees/Sales Reps.
    7. Select the first Employee record that includes an hourly Overtime rate defined and click the Pay Info tab.
    8. Take note of the Regular rate defined for the employee and click the Withholding Info tab.
    9. Enter the Regular rate as it was noted from step 8 in the Special 4 row in the Addl Withholding field.
    10. Click the Save button and repeat steps 7-9 for additional employee records that are categorized as Hourly workers and expected to take Overtime in payroll periods for 2024. 
  • 0 in reply to E Gibson

    Now that the Alabama State Tax Overtime Exemption has ended today (July 1st), how can we change the formulas in Sage 50 to handle this change going forward?  Will there need to be a new Sage 50 update rolled out to handle this?  If so, when will it be available to install?  Or how can we change back to the formulas from before?

  • 0 in reply to Jonathan Killen

    We used the instructions in Setup instructions for Alabama State Income Tax (ALSIT) overtime reporting and it has been working. Now that the law has ended is it possible to just change the wage amount in Special 4 Addl Withholding to zero and the calculation would no longer work? Or would that keep all overtime from being taxed at all? I don't think you can just remove the ALSIT formula put in per the setup instructions in the Sage maintained section of the payroll tax table? Really need help getting back to charging AL tax on all wages. Thanks

  • 0 in reply to Jonathan Killen
    Suggested

    Here are the steps I just got from Sage Support.  We are about to test these steps and see if they work:

    Go to Maintain -> Default Information -> Employees.

    On the Employees Filed Tab, on the line for SIT, click in the formula box and enter **SIT and click okay.

    To verify the changes, create a test check for an employee. You want to zero out everything (hours, Overtime, and any remaining amounts).

    Then enter any amount of hours in the Overtime pay field, and it should calculate taxes for the State.

  • 0 in reply to Jonathan Killen

    This appears to have worked for us.  I hope it works for others, too.

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