Overview

• Vacation pay is fully taxable as employment income and also subject to health, nursing-care, pension and unemployment contributions
• Lump-sum vacation bonuses count as “sonstige Bezüge” and trigger higher withholding due to the temporary spike in income
• Spreading vacation pay across monthly salaries applies the individual’s standard tax rate and reduces upfront deductions
• Any extra tax deducted on a one-time bonus is reconciled through the annual tax return, making higher withholding only temporary
• Employers can opt for an Erholungsbeihilfe allowance taxed at a flat 25 percent and exempt from social contributions up to fixed per-person annual caps, with mini-job holders able to keep small bonuses tax-free if thresholds aren’t exceeded