Germany proposes tax exemptions for overtime bonuses

The German federal government has proposed the ‘Arbeitsmarktstärkungsgesetz’ (Labor Market Strengthening Act) to increase net wages for millions of employees by adjusting tax regulations on overtime.

Under the proposed plan, bonuses for overtime work that exceeds standard weekly hours—defined as at least 34 hours for collective agreement workers and 40 hours for others—would be tax-free. However, the overtime pay itself remains subject to taxation; only the specific bonus for the additional work is exempt. This exemption is capped at 25 percent of the base wage.

The draft, presented on September 12, 2025, aims for implementation on January 1, 2026, through an amendment to Section 3 of the Income Tax Act (EStG). As of late August 2026, the draft has not yet been legally finalized.