4 Min.

What is a proviso safeguarding progression (Progressionsvorbehalt)?

There are tax-free government social benefits that can actually increase the tax burden through the provisio safeguarding progression?

The possibility of turning to government social services at some point in your lifetime isn’t really that low. We feel so secure in our jobs and we have the best qualifications, then, before you know it, that comfy lifestyle you are so used to is over, from one day to the next.

The company goes bankrupt, your job is cut or just a stroke of fate knocks you off course - there are many different reasons for difficult phases in your life.

It’s good that the government normally doesn’t let you down in such situations. In the long run, we pay a lot of taxes so that the rug won’t be pulled out from underneath us. However, you still have to watch out for the mother of all situations. This includes the topic of proviso safeguarding progression (Progressionsvorbehalt). Never heard of this? Well, you’re not alone. We will explain it to you.

  • Did you buy a laptop or a mobile phone?

  • Did you move last year for work?

  • Did you work less than 12 months last year?

  • Was your work commute more than 30 minutes?

  • Are you married with tax class III/V?

  • Did you pursue a further education?

  • Did you receive self-employment income?

You are required to file a tax return.

Filing your tax return is worth it! You will most likely get a very high tax refund.

You can expect a high tax refund.

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Most government social services are tax-free. That sounds really good at first; however, the availment increases the amount of taxes to be paid due to the so-called proviso safeguarding progression (Progressionsvorbehalt) during this time.

Proviso safeguarding progression (Progressionsvorbehalt) means that income like unemployment benefits (Arbeitslosengeld) or parental allowance (Elterngeld) are used for determining the tax rate, without having to pay taxes yourself. There is even something called negative proviso safeguarding progression (Progressionsvorbehalt) that can ease the tax burden (Steuerlast) under certain circumstances.

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GREATER TAX BURDEN DUE TO THE PROVISO SAFEGUARDING PROGRESSION (Progressionsvorbehalt)

Certain social benefits, aid and compensation is added to the regular income by the tax office. This income represents the basis of calculation for the tax debt. The tax burden increases due to the proviso safeguarding progression (Progressionsvorbehalt), since the total income will be included in the next graduated tax rate (Stufentarif).

Now, the respective tax office will determine your tax burden (Steuersatz) with this basis of calculation. If you receive tax-free social benefits, then normally you will have to pay more taxes; however, not for the tax-free services themselves.

The “Principle of Performance-linked Taxation” (Prinzip der leistungsgerechten Versteuerung) is discussed often in the media. Ultimately, the financial performance is increased with social benefits.

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TAX-FREE INCOME

Income tax law §32b clearly states which tax-free earnings go to the income under the proviso safeguarding progression (Progressionsvorbehalt).

  • ALG 1
  • Insolvency payments (Insolvenzgeld)
  • Short-time compensation (Kurzarbeitergeld)
  • Maintenance as an extra payment (Unterhaltsgeld als Zuschuss)
  • Maternity allowance (Mutterschaftsgeld)
  • Sick pay (Krankengeld)
  • Parental allowance (Elterngeld)
  • Foreign income (ausländische Einkünfte)

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RESULTS

Under certain circumstances, a provisio safeguarding progression (Progressionsvorbehalt) leads to taxes having to be refunded. This is also the case if all income doesn’t exceed the allowable deduction (Grundfreibetrag currently €9,000 for singles).

Those who have earned less, yet received social services, will exceed the allowable deduction (Grundfreibetrag) because of the provisio safeguarding progression (Progressionsvorbehalt) and would thus be taxed according to an initial tax rate (Eingangssteuertarif) that comes into effect when the deduction is exceeded.

Information for married couples: Tax-free services are always added to the spouses income. Thus, you should plan on using financial savings for a possible back payment.

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SUMMARY

  • There are numerous incomes that are tax-free; however, this can actually increase your tax burden due to the provisio safeguarding progression (Progressionsvorbehalt)
  • Income, such as unemployment benefits (Arbeitslosengeld), are included in the tax rate calculation, but is not actually taxed itself
  • A negative provisio safeguarding progression (Progressionsvorbehalt) can actually lower the tax burden
  • Tax-free social services are clearly explained in income tax law
  • Tax-free income is added to a spouse’s income in a marriage and/or a civil partnership