Fifths rule for cumulative payment of overtime compensation

If overtime compensation is paid for more than twelve months, a tax reduction under the one-fifth rule is eligible.

If the employer pays out overtime compensation for a period of more than twelve months at once, the employee can claim the tax reduction under the one-fifth rule. This has been confirmed by the Federal Fiscal Court in a recent ruling. However, the Federal Fiscal Court has previously ruled that there must be economically reasonable reasons for the concentrated payment in order for the tax reduction to apply. These reasons can exist for both the employer and the employee, for example because the employment relationship is terminated or the employer's liquidity was temporarily restricted.