Net salary: Merz government wants new taxation – it affects millions of workers
The German government under Chancellor Friedrich Merz is planning a new tax reform aimed at making overtime work more financially attractive. The proposal focuses on introducing tax-free bonuses for overtime hours, potentially affecting millions of employees across the country.
Under the planned rules, only the bonus payments for overtime would be exempt from income tax, not the base overtime wages themselves. The measure applies only to hours worked beyond standard full-time thresholds — typically 34 hours per week for collectively agreed contracts and 40 hours for non-tariff agreements.
The government argues that the change is designed to reward additional effort and increase take-home pay. However, the tax exemption would be limited to a maximum of 25% of the base wage, meaning the financial benefit per worker would remain relatively small.
According to current proposals, the reform is part of a broader “labour market strengthening law” first introduced in September 2025, with a planned start date of January 2026. However, as of mid-2026, the measure has not yet been formally enacted into law and remains in the legislative process.
Experts note that the potential financial gain for most workers would be modest. A calculation based on average wages suggests that an employee earning €3,000 gross per month might receive only around €30 extra net per year from the reform, depending on overtime levels and eligibility.
Criticism of the proposal focuses on its limited reach. The tax break would apply mainly to full-time employees, while part-time workers — who make up a significant share of the workforce, especially women — would largely not benefit. As nearly half of employed women in Germany work part-time, critics argue the policy could deepen existing inequalities.
Labour unions and analysts also point out that only a small fraction of workers regularly receive paid overtime bonuses at all, with many companies compensating extra hours through time off instead of pay. As a result, the overall impact of the reform may remain minimal for the broader labour market, despite its political significance.