A cross-border worker resident in Germany who works for an employer based in Luxembourg receives a total of EUR 5,000 tax-free in 2024 for overtime worked in Luxembourg. Considering this income would be fully tax exempt in Luxembourg, the right of taxation would revert to Germany in accordance with the subject-to-tax clause.
In this case, the employee would have to declare the EUR 5,000 overtime pay in her 2024 German income tax return. The remaining salary subject to taxation in Luxembourg would be exempt from German tax but would be taken into account to determine the applicable German tax rate (so-called “progression clause”). This ultimately means that even if the overtime remuneration is below the German basic tax-free allowance, there could be a tax burden in Germany due to the progression clause.
As far as the German taxable income basis is concerned, an annual employee allowance of EUR 1,230 in 2024 (“Arbeitnehmer-Pauschbetrag”) would be deductible from the overtime income, meaning that the remuneration for overtime work would be exempt from personal tax in Germany to the extent the overtime income would not exceed the annual employee allowance and if no other employment income was taxable in Germany. (Note that the individual may also claim other standard or itemised deductions in the tax return (e.g., donations, private health insurance contributions, etc.), which could further reduce the taxpayer’s German taxable basis.)