Back tax payment in the event of short-time working

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Is there a threat of back taxes for employees on short-time work?

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Many employees are currently on short-time working due to the Covid 19 pandemic. As if this and the associated loss of income were not bad enough for many of those affected, there is the threat of further trouble in 2021.

In the context of the tax return that is obligatory this year due to the receipt of the short-time allowance, employees on short-time work may be threatened with an additional tax payment. The reason for this is the way short-time allowance and the German tax system work.

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What is short-time allowance?

Definition of short-time work

In order to understand why employees on short-time work may be threatened with an additional tax payment, it is important to understand the meaning and function of short-time allowance. Short-time allowance is a benefit from the unemployment insurance scheme that serves to at least partially compensate for the loss of earnings of the employee and to avoid redundancies as far as possible. Employers are entitled to this benefit under certain conditions - namely those of the §§ 95 ff. SGB III - the possibility of agreeing short-time work with employees and applying for short-time allowance.

Thereby exists according to § 95 SGB III an entitlement of the employee to short-time allowance if

  1. there is a significant loss of work with loss of pay (§ 96 SGB III),
  2. the operational requirements are met (§ 97 SGB III),
  3. the personal requirements are met and (§ 98 SGB III)
  4. the loss of work has been reported to the employment agency (§ 99 SGB III).

In the context of short-time work, employees regularly receive 60% of the net remuneration difference in the entitlement period as so-called short-time allowance (§ 105 SGB III). Employees who meet the requirements for the increased benefit rate for unemployment benefits, on the other hand, generally receive 67% of the net remuneration difference in the entitlement period as short-time allowance.

In contrast, special features arise in the context of the COVID 19 pandemic pursuant to Section 421c SGB III, which makes temporary special provisions in connection with short-time work and the receipt of short-time allowance by employees. Section 421c (1) of the Third Book of the German Social Code (SGB III) initially contains a special provision regarding the counting of marginal employment for the duration of the receipt of short-time allowance, while Section 421c (2) of the Third Book of the German Social Code (SGB III) provides for a graduated payment of short-time allowance for employees from a certain period of receipt.

In accordance with Section 421 (1) SGB III, it is important for you as an employee in the coming year that, for the period from January 1, 2021 to the end of December 31, 2021, remuneration from marginal employment in accordance with Section 8 (1) No. 1 SGB IV, which was taken up while receiving short-time allowance, is not added to the actual remuneration in deviation from Section 106 (3) SGB III.

Another special feature is the level of entitlement to short-time allowance under Section 105 of the Third Book of the Social Code.2021, the short-time allowance for employees who would qualify for the increased benefit rate in the case of unemployment benefits amounts to 77 percent from the fourth month of receipt and 87 percent from the seventh month of receipt, while for other employees it amounts to 70 percent from the fourth month of receipt and 80 percent from the seventh month of receipt of the net pay difference in the entitlement period, provided that the entitlement to short-time allowance arose by December 31, 2021 and the difference between target and actual pay in the respective month is at least 50 percent.

What is tax progression or progression retention?

Definition of tax progression and progression retention / Additional tax payment in the event of short-time working

But how does the risk of additional tax payments arise for employees on short-time work? This is due to the so-called tax progression and the so-called progression proviso.

The concept of tax progression simply means that as income or wealth increases, the tax rate also increases proportionately. The idea behind tax progression is that justice dictates that the person who is financially more able is able to pay and must pay a higher percentage of his income than the economically weaker person (BVerfGE 8, 51 - judgment of June 24, 1958).

The so-called progression proviso is a phenomenon of German tax law. The progression proviso means nothing other than that income which is in and of itself tax-free can nevertheless increase the relevant tax rate. The progression proviso also follows from considerations of fairness: Even if the income in question is and remains tax-free in and of itself, it nevertheless increases the financial capacity.

This is also the case with short-time allowance. If you have received short-time allowance as an employee, a special tax rate is applicable to the income taxable under Section 32a (1) EStG. This results from Section 32b (1) no. 1 lit a) EStG. This means that the short-time allowance received by employees continues to be and remain tax-free. However, the tax rate for the remaining income may increase. This means that employees on short-time work may be liable for back taxes.

However, it is not possible to make a generally binding statement as to whether employees on short-time work can expect to pay back taxes, as this depends on the individual case. In other words, depending on how much income tax was paid last year, the following scenarios are possible for employees:

If you, as an employee, have paid sufficient or too much income tax in the past year, you may even be able to enjoy a tax refund. This is possible, for example, in the case of so-called "short-time work zero": In the case of so-called "short-time work zero", the employee no longer works. In this case, there is no wage payment either, but only short-time allowance. However, if regular work was performed during the past year and short-time allowance was received only in part and in addition to regular pay, there is a risk of a possible additional tax payment for employees on short-time work.

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What happens to the social security contributions?

Social security contributions

In contrast to the threat of additional tax payments for employees on short-time working, you will not suffer any disadvantages as an employee with regard to social security contributions. If you continue to receive remuneration (so-called "actual remuneration"), everything remains the same for you. The corresponding social security contributions are merely adjusted to the actual remuneration paid and are shared between employer and employee as usual. For the so-called "fictitious remuneration", i.e. 80% of the remuneration calculated from the difference between the so-called "target remuneration" (i.e. the remuneration normally payable without short-time working) and the "actual remuneration", the employee alone pays the social security contributions.

In other words, you as an employee do not have to pay social security contributions for your loss of work and earnings, even if you are on short-time work "zero".

What can you do?

Measures to be taken for employees

It initially remains to be seen whether the legislator will act in time to mitigate the tax consequences for employees who received short-time working benefits last year and to prevent the threat of additional tax payments for employees on short-time working. However, in view of the tight financial situation caused by the COVID 19 pandemic, it is questionable whether corresponding tax revenues can be dispensed with in the near future.

Keep calm, however. As already explained, whether employees on reduced working hours are at risk of having to pay back taxes depends on a number of factors, all of which must be examined in fact and in law - ideally by a tax and legal advisor. labor law experienced lawyer or tax advisor - are required. As labor law accomplished attorney, I offer comprehensive counsel regarding the Covid 19 pandemic and am happy to help you through difficult times like these.

Do you need legal assistance from an attorney in employment law?

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+49 (0) 2273 - 40 68 504

info@kanzlei-baumfalk.de

Law firm for labor law in Kerpen, Cologne and Witten

Lawyer for - Labor Law | Criminal Law | IT Law | Data Protection

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