Germany's Overtime Pay Tax Exemption Sparks Inequality Debate

Germany's new overtime pay tax exemption aims to reward hard work, but critics warn it will mainly benefit the wealthy. Only a small group of full-time workers will see a modest tax saving.

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2025 October 30 . 1:02 AM

1 min read

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Germany's Overtime Pay Tax Exemption Sparks Inequality Debate

The German government's new plans to make overtime pay tax-exempt have sparked debate. While it aims to reward hard work, critics argue it favors the wealthy. Around 95% of the tax relief would go to the top half of earners, with the bottom half receiving just 5%.

The proposed changes would only benefit a small group of workers - specifically, those doing overtime beyond collectively agreed or tariff-bound full-time hours, under tariff agreements. This amounts to just 1.4% of all workers. On average, employees would save a mere 87 cents per month in taxes, with the median tax saving at a meager 31 cents.

Part-time workers and those in marginal employment would not receive any tax advantage. Only overtime worked beyond standard full-time hours would qualify for relief, further limiting beneficiaries. Professor Dr. Bettina Kohlrausch, Scientific Director of the WSI, criticizes the proposal for exacerbating income inequality.

Despite German workers having accumulated around 500 million unpaid overtime hours, worth roughly €9.5 billion, the proposed tax exemption on overtime pay may not provide the widespread relief intended. Instead, it primarily benefits those in the upper half of the income distribution.