From 01/01/2026, Is Overtime Pay Exempt from Personal Income Tax?

1. All overtime pay from 01/01/2026 will be exempt from personal income tax

According to the Personal Income Tax Law 2025, the tax policy regarding overtime pay for employees has undergone an important change, expanding the scope of tax exemption.

Specifically, Clause 8, Article 4 of the Personal Income Tax Law 2025 stipulates tax-exempt incomes, including:

“Wages for night work, overtime pay, and wages or remuneration paid for unused leave days in accordance with the law.”

Thus, starting from the 2026 tax period, all overtime wages of employees will be exempt from personal income tax, instead of only a portion of such income as previously applied.

In addition to overtime pay, the following wage-related incomes will also be exempt from personal income tax from 2026:

• Wages for night work

• Wages or remuneration paid for days when employees do not take leave in accordance with legal regulations

This policy is considered beneficial for employees, especially those who frequently work overtime or outside normal working hours.

2. Regulations on overtime tax exemption before 01/01/2026

Before the issuance of the Personal Income Tax Law 2025, tax exemption for overtime wages was implemented according to Clause 9, Article 4 of the Personal Income Tax Law 2007 (as amended and supplemented).

According to this regulation:

“The portion of wages for night work or overtime work that is paid higher than the wages for daytime or regular working hours” is exempt from tax.

This means:

• Only the additional portion of wages (the higher pay due to overtime or night work) was exempt from tax

• The portion equivalent to regular working-hour wages was still subject to personal income tax

Compared with the previous regulation, the Personal Income Tax Law 2025 significantly expands the tax exemption scope, as it exempts the entire overtime wage instead of only the additional portion.

3. Effective date of the Personal Income Tax Law 2025

According to Article 29 of the Personal Income Tax Law 2025, the law’s effective date is stipulated as follows:

• The law takes effect from 01 July 2026

• Provisions related to income from business and income from salaries and wages of resident individuals apply from the 2026 tax period, starting 01 January 2026

• The Personal Income Tax Law 2007 and previous amendments will cease to be effective when the new law takes effect, while provisions regarding wages and salaries will cease from the 2026 tax period

Conclusion:

• From 01/01/2026, all overtime wages of employees are exempt from personal income tax

• This differs from previous regulations, where only the additional overtime portion was tax-exempt

• The Personal Income Tax Law 2025 officially takes effect on 01/07/2026, but provisions related to wages apply from the 2026 tax period

The new policy is expected to help increase employees’ actual income while creating greater work motivation and better protecting the rights of salaried workers.

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Viet Australia Auditing Company is an independent auditing organization licensed and established in 2007 in the Socialist Republic of Vietnam.