Holiday work and overtime will be tax-relieved - changes to the dirt allowance

The planned new regulation for tax relief on overtime and holiday work was already decided at the beginning of the year. Specifically, this affects the following points:

• The tax exemption for (all) holiday pay up to €400 per month has been expressly enshrined in law (§ 68(1) EStG). Previously, only related supplements could be settled with tax relief.
• The preferential taxation of overtime will remain in place for 2026, with a tax exemption of up to 15 hours of overtime per month, resulting in a maximum tax saving of €170 per month. From 2027, the tax exemption will be reduced to 10 hours of overtime per month (maximum tax saving of €120 per month).
• The possibility of converting so-called "phantom shares" (virtual shares) into actual start-up employee shareholdings on a tax-neutral basis will be extended by one year until the end of 2026.

The presented changes already apply to payroll periods from 1 January 2026. Employers must carry out a corresponding backdated adjustment of payroll accounting no later than 31 May 2026.

Regarding the dirt allowance, changes have been made by the Income Tax Guidelines Maintenance Decree 2025. The central point here is the following monthly estimated amounts for costs incurred by the employee for cleaning their body and work clothing, provided they are not covered by the employer.

Dirt allowances granted by the employer may be treated as tax-free if they do not exceed these estimated values by more than one-third (tolerance arrangement). Conversely, a dirt allowance can lead to tax liability for the employee (the amount of the dirt allowance is considered unreasonable and the excess amount is subject to tax), for example, if the employer cleans the employee's work clothing and thus the employee's actual additional expense is lower.

As an alternative to estimated costs, the actual divergent costs can be claimed for tax purposes, provided that appropriate proof is supplied, for instance, in cases of external cleaning of work clothes or actual additional costs for hygiene products.

Image: © Adobe Stock - Nan Liu