Alabama Overtime Exemption - any resolution?

I've seen complaints about this form pop up quite a few times so I thought I'd research it.

The AL rules appear to state that:

For full time, and hourly employees who work more than 40 hours per week, whether or not you paid them overtime for the hours over 40 (and only over 40), the wages from those hours are exempt from withholding tax.

However, what QuickBooks is actually doing is quite different. It isn't following those rules at all!

QuickBooks is very simple-mindedly exempting all wages paid using an hourly overtime item. It is including OT wages paid to part-time employees, OT wages paid to salaried employees, and OT wages paid when there is less than 40 hours of work in a week. And it does not include wages over 40 hours per week that were paid using a standard hourly item.

This could explain a few things.

RE: none of the overtime paid this year (as in hours over 40 per week) appears to be exempting from state tax as it's supposed to.

Appears where? I assume you mean on the paychecks? If so, did you use special overtime type pay item for the overtime? If not, that's why.

If you are noticing that the AL - OT Withholding Exemption item is 0.00 on the paycheck, that is actually how it (weirdly) works.

RE: The AL - OT Withholding Exemption payroll item is on each employees information as instructed.

Is the item also on each paycheck with a calculated amount equal to the overtime paid? (Adding the item to the employees after you create the paychecks won't work. The other tax has to be on the paychecks in order for it to flow to the form.)

RE: It has "Number of employees with exempt overtime wages" showing the count of ALL paid employees when it should read 2.

It will show all of the employee where an overtime item is used on a paycheck with a non-zero number of hours. Do all of the employees use an overtime item? To check, start on the payroll item list and edit the hourly item(s) used by your employees and check the title of the window for the text "(Hourly Wage: Overtime)".  If it says that, then it's an overtime item. If it doesn't, it's not (regardless of how you use the item or what it is called).

RE: The next line is for "Total amount of exempt overtime wages paid" and shows ALL wages paid for the month of January when it should show only a few hundred dollars.

I don't know how all of your wages for January could be exempt. It suggests that you paid all of your wages using an overtime item. See previous answer to check your earnings items to see which ones are overtime items.

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Note that the form will only be right if you:

1) Pay all wages over 40 hours per week using an overtime item.

2) Don't use an overtime item for overtime items wages where the employee worked less than 40 regular time hours per week. If you must pay overtime in this case (you may be required to), then create and use a regular hourly item as if it is overtime to fake out QuickBooks.

3) Only use overtime items for hourly employees.

4) Remove the AL - OT Withholding Exemption other tax item from part time employee's employee record. In this case, then you can pay them overtime and it won't be included on the form - because the AL - OT Withholding Exemption item won't be included on their paychecks.

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In testing I did see something that seems wrong, but I'm not sure:

For employees/paychecks with the AL - OT Withholding Exemption item, I found that paying overtime actually reduced the state income tax withholding amount. The more OT wages I added to the same regular wages on the paycheck, the less the tax until it was 0.00. This doesn't really seems right. It seems unlikely that employees who earn overtime owe less money to the state when they file than if they hadn't earning it. The same, maybe, but less?

Thank you for turning to the Community about your payroll concern, kgd5829.

It is concerning to hear that the new Alabama Overtime Withholding Exemption item is not working as expected. It appears that even though you followed the provided instructions, none of the overtime paid this year seems to be exempt from state tax as it was supposed to be.

With this, we'll forward your case to our Next Level Help team. They'll review the comments and recent cases with support. You can expect them to contact you within 1-2 business days to provide further assistance.

I also want to make sure you have the resources needed to complete any payroll-related activity. The following link contains topics about managing your employees' information and handling tax notices to name a few: QuickBooks Desktop Payroll.

Feel free to reach out again if you need further assistance with payroll and other QuickBooks concerns. The Community is always here to lend a hand. 

Just got off the phone with a representative from Intuit's Payroll Escalation Team, who reached out to me -- very pleased with that, by the way.  I believe they understand the specific issue I'm seeing and how the calculations are not performing as expected. She walked me through removing the OT Exemption item from non-hourly employees, and verified it had no effect on the A6 Withholding report.  Also we set up a new Overtime item with the EZ-Setup method, altered a prior paycheck to use this item, and saw that it also had no effect on the A6 reporting.

So they are still working on it.  I was very pleased with the level of support here, even though we didn't get a resolution yet.  Of course the calculations on overtime exemption week to week are likely still off, but I feel more confident we'll get there soon and I can clean it up afterwards.

To address your specific points:

1) Pay all wages over 40 hours per week using an overtime item.

Verified this is what we are doing.

2) Don't use an overtime item for overtime items wages where the employee worked less than 40 regular time hours per week. If you must pay overtime in this case (you may be required to), then create and use a regular hourly item as if it is overtime to fake out QuickBooks.

Can confirm this is correct, we do not use overtime for any wages from hours less than 40.

3) Only use overtime items for hourly employees.

Confirmed, we only use OT Payroll items for hourly employees.

4) Remove the AL - OT Withholding Exemption other tax item from part time employee's employee record. In this case, then you can pay them overtime and it won't be included on the form - because the AL - OT Withholding Exemption item won't be included on their paychecks.

No part time employees, so not applicable.

Other items you mentioned, yes we are using overtime pay items for overtime pay.  And the new OT Exemption item was added to each employees Tax Info per instructions before the first paycheck of 2024.

Also, all overtime items read "Hourly Wage: <payroll item name> Overtime".  We have multiple overtime payroll items based on which General Ledger Direct Job Cost account we want to use.  This was demonstrated to the Escalation rep, also.

Thanks for your helpful input, @BigRedConsulting!  Also appreciate the follow-up from @Rasa-LilaM.  I really didn't expect someone to reach out, so I'm hopeful we'll find a resolution soon.

So where are you at with the report?

It seems like it should be working if your data is recorded appropriately - and it seems to be from your description.

Status is the same as reported above; I'm waiting for further follow-up from Intuit.  Worst case scenario, I can manually calculate and submit information to the state.  My concern at this point is that the problem has been acknowledged, hopefully getting a permanent fix before the numbers begin "snowballing" over a period of weeks and months.  Right now it's just a few hundred dollars in overtime between 2 employees.

I wonder why you're seeing different behavior than I am? That's an odd one.

I just have to assume something is configured incorrectly on my company file, but maybe now I can get some insight into how to specifically correct it.  I'll report back when I get it resolved, if not sooner.

Did you ever get a resolution? I’m having the same issue and have spent hours on the phone with support and most have no idea what I’m talking about. If I try to add OT hours, it reduces the state taxes. The more hours, the more it deducts. As much money is paid to them, they should’ve resolved this prior to 2024!

I understand that time is of the essence for resolving this issue, BamaGirl777. No worries, I'm here to ensure you'll get past this.

In QuickBooks, it is required that we only use the Overtime (x1.5) hourly item created by the QuickBooks payroll program with your employees' paychecks. If a custom Overtime (OT) item was created, necessary action is required. Create a new OT item via payroll EZ setup and merge the custom item into the new one. To set up the item through the EZ Setup. Here's how:

1. Click on the Lists menu.
2. Select Payroll Item List.
3. At the lower left of the Payroll Item List, click Payroll Item, and click New.
4. Select EZ Setup and click Next.
5. Follow the onscreen instructions and tick the necessary radio buttons that apply.

Next, add a new Alabama-Overtime (AL - OT) Withholding Exemption to employees' profiles by going to: Follow the steps below:

1. Employee menu, then select Employee Center.
2. Click Edit Employee, and then select Payroll Info.
3. Then click on Taxes, then select the Other Tax tab. Make sure to add the item to the list.

Additionally, we need to create the new Alabama-Overtime (AL - OT) Withholding Exemption payroll item (one-time only). Here's how:

1. Get the latest payroll update. The Add Item Wizard will launch and take you through setting up the AL - OT Withholding Exemption payroll item.
2. Go to Employees, and select Employee Center.
3. Double-click your employee.
4. Select Payroll Info.
5. Select Taxes, then the Other tab. Add the new AL - OT Withholding Exemption item. Then, click OK.
6. Repeat steps 3-6 for each full-time hourly employee.

Also, please note that the AL-OT Withholding exempt item will show 0.00 on the employee's paychecks/pay stubs. This item is for tracking/filing purposes only.

You may refer to this article for more details:

• Set up and track Alabama overtime exemption
• Set up and manage payroll schedules
• New Alabama Overtime Withholding Exemption Rule

Moreover, I suggest contacting the support team for further investigation. By reaching out to them, you can provide detailed information about the problem. To reach out to our Customer Support Team, here's how:

1. Go to the Help icon to connect to a live support agent.
2. Provide us with some information about your concern.
3. Select the Contact Us button and provide some details about this concern, then on the Let's talk button.
4. You'll now be provided options on how to connect to our Customer Support.

Please keep me updated on the progress of the steps so that I can ensure you receive further assistance. Have a great day!

Do you copy and paste the same responses to every question like this?? I did the update when it was released and went through your EZ Setup Wizard. It doesn’t work! I have spent hours on the phone with support to build and rebuild data, verify the employees are setup with the correct OT withholding on their payroll, edit the OT payroll item, install and uninstall the wizard, and then to finally admit that your engineers know that it’s not working, but you will have an update with the solution that never comes! 

I see you've tried a lot of things to fix it. Your time and effort are important to us, Bama.

Currently, there's an ongoing investigation about Alabama Overtime Payroll Tax Update. Rest assured our engineers are prioritizing this matter. 

If your company details aren't yet added to the lists of the affected users, I suggest contacting our Support Team. Go to the Help menu and select QuickBooks Desktop Help F1. Alternatively, we can use the link below.

1. Go to this link: Contact Support Team.
2. Enter your full name and email address.
3. Then, follow the on-screen instruction to complete the process.

Know that we wouldn't like you to experience this for long. If you have concerns, you can always post here.

I have been working with QB Desktop Support over several days, and we have everything working now.

What I have found is that our use of custom Overtime items was not triggering the problem in our case, as we ran "test" payrolls with the built-in overtime items and it made no difference.

After a few days of looking at my company data file, the support representative I was working with advised me that an issue had been discovered and updated code had been released to address it.  This update was via the Help/Update Quickbooks Desktop menu function, and I had to select the option to "Reset Update" under the "Update Now" tab for the correct updates to apply; when I didn't use the Reset option, nothing changed.

The update was applied, and any paychecks created after the update calculate tax correctly for Overtime and also populate the A6 Withholding report correctly for the Overtime employee count and OT wages for the period in question.  I would have to go back and recreate older 2024 paychecks for all the data to update/populate correctly, and I doubt I'll do that.  I'll just get the numbers for my A6/A1 submissions via reporting of overtime with QB Reports.

The only outstanding item I have is a pay item for one of our employees.  We provide this employee with a fringe benefit for his company use in his personal vehicle.  For some reason, the A6 Withholding report was including this benefit payment in the Overtime Wages Paid field.  Workaround was to edit the Truck Allowance item, and on the Taxes screen I unchecked "AL - OT Withholding Exemption" (which was on by default).  Once this was changed, the totals in Overtime Wages Paid on A6 were immediately corrected.  The support representative I was working with also confirmed this issue is being worked on by the developers.

I confirmed with this week's payroll run that everything appears to be functioning as intended.  Also, I can now see correct activity on the Payroll Item Detail report for AL - OT Withholding Exemption item.  Before, it showed the entire paycheck as "Wage Base," and now it only shows any overtime wages as Wage Base.

I would think that running the QB update routine as I detailed above would get the fix for anyone going forward from that point.  It looks like the prior paychecks will continue to show incorrect info unless they are recreated.  The good news is that the actual tax withheld from OT wages looks like it's attempting to correct itself based on the quarter-to-date withholding (so it's withholding less state tax that it normally would for a given pay period until the QTD amount works itself out.  That last statement is just my interpretation based on what I've observed.

I followed your steps exactly, and it is still not calculating correctly. QB has no idea what I’ve paid out so far in OT, so as I add more OT, the taxable liability to the state is reduced, not as a correcting item. 

I followed your steps exactly, and it is still not calculating correctly. QB has no idea what I’ve paid out so far in OT, so as I add more OT, the taxable liability to the state is reduced, not as a correcting item.