How do you rightly not pay taxes?

No taxes on short-time work benefits, but higher taxes on other income

Although there are no taxes for the short-time work allowance, those affected could be asked to pay by the tax office - if things go bad. Copyright by Adobe Stock / mitifoto

The Ministry of Finance reacted to the spread of the corona virus and launched an aid package as a protective shield for workers and companies. Part of the package was to relax the requirements for short-time work.
Many companies took advantage of this to get out of the crisis relatively lightly. Never in history have more people in the Federal Republic of Germany been affected by short-time work. In March 2020, around 470,000 notifications of short-time work had already been received by the Federal Employment Agency nationwide. Typically, an average of fewer than 2,000 ads are received each month.

Almost five times as many short-time workers as at the peak of the financial crisis

According to calculations by the Munich Ifo Institute, 7.3 million employees were on short-time work in May. That is the highest value that Germany has ever seen. Even at the peak of the financial crisis in May 2009, “only” 1.5 million people worked briefly.
Short-time work is certainly a suitable instrument for avoiding layoffs during a crisis as much as possible. For the employees concerned, however, it leads to a significant loss of income. The gross wage is reduced by the same percentage as the working hours. The employees affected receive 60 percent of the net wage loss. If one or more children live in the household, it is 67 percent. In the Corona crisis, the short-time work benefit increases from the fourth month to 70 percent (77 percent with children) and from the seventh month to 80 percent (87 percent with children).
We reported about it:
"Flash message: after four months higher short-time work benefits"


The unions quickly negotiated collective agreements for employees on short-time work

As far as the amount of the statutory short-time work allowance is concerned, wealthy Germany is at the bottom of the list in Europe. In this situation, it has once again paid off to have strong unions. In many industries and companies, the unions had already concluded collective agreements before the corona pandemic that significantly increased the short-time work allowance. In the Corona crisis, the unions very quickly negotiated collective agreements for employees on short-time work.
More on this in our articles
"Statutory short-time work allowance: Germany brings up the rear in Europe"
and
"Corona makes it clear: collective agreements improve the situation of employees noticeably"


Very treacherous: the progression reservation

There is another disadvantage for employees who receive short-time work benefits. Employees do not have to pay any taxes for the service itself. Accordingly, the employer does not pay the tax office anything for the short-time work allowance.
In German tax law, however, there is a treacherous regulation called "progression proviso".

The tax rate rises up to 45 percent depending on the level of income

In Germany, not everyone pays the same tax rate on their income. The higher the taxable income, the higher the tax rate. This is called tax progression. We don't want to dwell here on how the tax is actually calculated. To understand this, you have to have already studied mathematics.
To put it simply, there are several stages of progression in tax law. Anyone with an annual income of up to € 9,168 in 2019 did not pay any income tax. After that, the starting tax rate of 14 percent began. For an income between € 14,255 and € 55,960, the basic tax rate was 23.97 percent. If the annual income was above that, it was 42 percent. The top tax rate of 45 percent began with an income of € 265,327.

Many social benefits ensure that a higher tax rate has to be paid on taxable income

Their recipients in Germany do not have to pay taxes for social benefits. However, most of these benefits are subject to the progression proviso. This includes short-time work benefits, sick pay and unemployment benefits, but not "Hartz IV". For the amount of the tax rate, a social benefit that is subject to this reservation is regarded as income.
Here is a very simplified example:


Egon Meier had a taxable income of € 12,000.00 in 2019. In addition, he had received short-time allowance totaling € 3,500.00. Without taking the short-time work allowance into account, he would have had to pay the low tax rate of 14 percent. However, because the short-time work allowance of € 3,500.00 is subject to the progression proviso, it is taken into account in the amount of the tax rate. Egon Meier only has to pay income tax on the income of € 12,000.00, but with regard to the tax rate based on an income of € 15,500.00, i.e. 23.97 percent.



But because the employer has not paid any income tax to the tax office for the short-time work allowance, an additional payment may be threatened. The short-time work allowance can result in higher taxes being paid for other income.

Download: Basic wage tax terms 2020 - From A for retirement benefit to Z for reasonable burden