5 Proposed Tax Cuts Will Save People $200 Million Each Year

MONTGOMERY Ala.
AL.com

March 9, 2025

Four proposals to cut taxes were introduced Wednesday in the Alabama House of Representatives and appear to be on a fast track.

One of the bills would reduce the state sales tax on food, while two others would cut income taxes. Overall, the bills are projected to save taxpayers about $190 million a year.

Another bill previously introduced tax cut items including diapers and baby formula would save an additional $10.5 million, lawmakers have said.

House Speaker Nathaniel Ledbetter, R-Rainsville, said he expects the House to consider the bills the week of March 18, when lawmakers return after taking next week off.

Ledbetter said the latest tax cut bills will add to more than a dozen passed bills since 2022.

Lawmakers also approved state income tax rebates of almost $400 million in 2023.

“We’re excited to be able to do that,” Ledbetter said. “I think it’s because that this body has been conservative with the budgeting process and making sure the money goes where it needs to be.”

Lawmakers also face a decision on whether to extend a major tax cut – a state income tax exemption on overtime pay that is scheduled to expire this summer.

All four bills introduced Wednesday are sponsored by Rep. Danny Garrett, R-Trussville, who is chairman of the House Ways and Means Education Committee. The bills have dozens of co-sponsors.

Here is a look at those bills:

Cutting sales tax on food from 3% to 2%: HB386 would reduce the state sales tax on food from 3% to 2% starting September 1.

The estimated savings to taxpayers would be $122 million a year. The bill follows up on one passed in 2023 that cut the tax from 4% to 3%.

Allowing counties to reduce sales tax on food: HB387 would remove a restriction on county and municipal governments reducing their sales tax on food.

Current law allows them to cut the tax only in years when their general fund increases more than 2% over the previous year.

Increasing income tax exemption for seniors from $6,000 to $12,000: HB388 increases an exemption to the state income tax for people 65 and older. The exemption is for taxable income from defined contribution plans, such as Individual Retirement Accounts (IRAs) and 401(k) savings plans.

The bill would increase the amount that is exempt from $6,000 to $12,000, saving taxpayers an estimated $45 million a year. The exemption would take effect in 2026. The $6,000 exemption was approved in 2022.

Changing dependent and standard deductions: HB389 would make several changes to the state income tax affecting dependent exemptions and standard deductions that would save taxpayers estimated at $25 million a year.

Eliminating sales tax on goods for babies and menstrual products: Another bill introduced earlier in the legislative session would remove the state sales tax, which is 4%, from diapers, baby formula and other baby products, maternity clothing, and feminine hygiene products.

It would save taxpayers an estimated $10.5 million annually.

Garrett called the bills “commonsense, conservative measures we can take to put more money back into the pockets of hardworking Alabamians.”

Will the overtime tax-exemption expire?

One tax cut approved in a prior session might be going away.

The Legislature approved the state income tax exemption on overtime pay in 2023 and it was in effect for the first time last year.

House Minority Leader Anthony Daniels, D-Huntsville, sponsored the bill, which won strong bipartisan support and passed without a dissenting vote.

Lawmakers included an expiration date June 30, 2025, because of concerns about the impact on the Education Trust Fund.

The state Revenue Department estimated that exemption reduced income tax revenue by $230 million during the first nine months of last year, far more than estimates.

Daniels said the economic benefits of the exemption exceed its cost.

He said the purpose of the bill was to allow employees to take home more of what they earn and provide an incentive for work during a time when Alabama’s labor force participation rate is lower than most other states.

Davis has said he will propose a bill that would extend it by another year and that would authorize a study to analyze the overall economic impact of the exemption.

Ledbetter said he did not know what would happen on the overtime tax exemption but said he believes the latest package of tax bills would benefit more people.

“Everybody in the state of Alabama gets a tax cut. And also our senior citizens gets a benefit from this,” Ledbetter said.