Abstract
By exempting overtime supplements from income tax, the coalition government aims to provide financial relief for workers and to incentives for overtime work. However, the planned reform is likely to fail on both counts: Only a tiny minority would benefit from the new exemption, and free-rider effects are likely to dominate. An analysis of the Earnings Survey shows that 95 percent of the relief would accrue to workers in the upper half of the wage distribution. Furthermore, the planned change leads to indirect discrimination against women, as the overtime they work is significantly less likely to qualify for the new tax privilege than is the case for men.