Mandatory Tax Assessment due to Short-Term Work

More employees in Germany than ever before are currently receiving short-term work benefits (Kurzarbeitergeld) due to the Corona virus. More than 12 million people received short-term work benefits in 2020 and according to the Federal Office of Statistics (Statistisches Bundesamt), more than 50% of companies throughout the country applied for short-term work. Many employees are wondering what impacts short-term work benefits have on their personal tax return (Steuererklärung).

Section 46 of the Income Tax Act (Einkommenssteuergesetz) states that all taxpayers who received more than 410 euros in wage replacement benefits (Lohnersatzleistungen) in the previous year are required to file a tax return. Since short-term work benefits are financed through contributions to unemployment insurance, those who have received these benefits are subject to (Pflichtveranlagung) even though the benefits themselves are tax-free.

Short-Term Work Benefits Can Raise Your Tax Rate

Although short-term work benefits are tax-free, they can lead to a back tax payment (Steuernachzahlung) due to the Progressionsvorbehalt. The amount you receive in benefits is added to your taxable income (§32b Income Tax Act), possibly leading to an increase in your tax rate (Steuersatz), which is then used to calculate the amount in taxes deducted from your regular income without benefits. For this reason, short-term work benefits must be declared in your tax return. You can find out more detailed information on Progressionsvorbehalt in our article here.

Additional tax payments can be extra difficult for many employees nowadays as so many have lost work due to corona – there are, however, ways to counteract this!

How to Counteract Additional Tax Payments

Some employers pay their employees subsidies in addition to their short-term work benefits which can offer the employee a bit more financial freedom. If the subsidies and benefits together do not exceed 80% of the employee’s lost wages, no taxes or social security contributions have to be paid. Unfortunately, the subsidies are also subject to Progressionsvorbehalt and can increase your tax rate.

One of the temporary regulations implemented due to Corona also allow employers to award tax-free “Corona bonuses” of up to 1,500 euros. This regulation is valid until December 2021 and it must be Corona-related. The bonus cannot be a part of your salary that was converted into a tax-free payment – but instead, an addition to your wages.

If you are married, it may make sense to file your taxes individually for 2020, otherwise your (possibly) increased tax rate will be applied to both partners.

Summary:

• Those who received short-term work benefits must file a tax return in the following year.
• The Progressionsvorbehalt can cause the tax rate on your income to increase leading to additional tax payments.
• It is important to start the process of your tax return early and calculate as many deductible expenses as possible! In case you don’t know everything that you can deduct, our online tax solution for employees helps you with interview questions – no deductible expense will be overlooked!

Good to Know:

• You can earn up to 450 euros per month (mini-job) in addition to your short-term work benefits. Any additional income above 450 euros will be deducted from your benefits.
• If you miss the submission deadline for your tax return (July 31st, 2021), you could receive late charges. Those who file voluntarily (Antragsveranlagung) have four years to submit their tax return for 2020 – until December 31st, 2024.
• If you have a child or if your spouse has a child, your short-term work benefits increase by 7%.
• You should accept opportunities for further education or training during short-term work. Your employers can claim this as tax-free allowance (Freibetrag) for the company.
• During short-term work, contributions to inflexible products such as Riester pensions can be adjusted.
• If you are having issues submitting your tax return on time due to Corona, you should contact your appropriate tax office (Finanzamt). Because of the pandemic, deadline extensions are usually granted.

Did you receive short-term work benefits? File your tax return now!