Employees, Corona and the Tax Return: Those Who Receive Wage Replacement Must File a Tax Return
Christoph H. was caught stone cold by the Corona pandemic in the spring of 2020: his employer specialises in the production and distribution of advertising printed matter. In the course of the initial crisis panic, even regular customers cancelled orders en masse, and new ones didn't come in at first - as product manager, Christoph suddenly had hardly anything to do. The company reacted quickly and sent most of its employees, from the printer to the secretary to the management level, into short-time work.
Short-time allowance: a blessing for many employees
After the initial shock, Christoph coped well with the situation, he was able to work a few hours a week in his home office, and the short-time allowance was high enough to continue paying his debts easily. To be honest, he even enjoyed the extra free time he had gained.
In the course of the year, the company's order situation picked up again, so Christoph's biggest worry that his employer might have to file for insolvency quickly evaporated.
How do the short-time allowance and other Corona assistance pay off in tax terms?
Short-time allowance is tax-free - Christoph knew that. That's why it never occurred to him that he would have to file a tax return for 2020 because he received it. Normally, he is not obliged to file an investment.
However, this now changes with the receipt of the short-time allowance, because this belongs to the so-called wage replacement benefits - just like, for example, sickness benefit, maternity benefit, parental allowance or unemployment benefit I. The insolvency allowance, which Christoph receives in 2020, is also tax-free.
Insolvency benefits, which Christoph would have received if his employer had had to file for insolvency, also count as wage replacement benefits. The same applies to any compensation for loss of earnings under the Infection Protection Act, which Christoph would have received if the health authority or another competent body had sent him into quarantine or banned him from working.
Wage replacement benefits change the tax rate - that's why they belong in the tax return
All wage replacement benefits are income that is subject to the so-called progression proviso: Unlike "normal" income (i.e. wages or profits from a commercial or self-employed activity), they do not count as taxable income - but they do influence the tax rate.
As is well known, the tax rate in Germany is quite individual: only income that exceeds the basic tax-free amount (in 2020 it was €9,408 for single persons, €18,816 for married persons) is taxed at all. And the more you earn, the higher your personal tax rate. From an income of €270,501 (€541,002 for married persons, values for 2020), you pay a top tax rate of 45%. In addition, there may be church tax and, until now, the solidarity contribution, which will only be waived from 2021 - but again not for the top earners.
There is a perfectly logical reason why Christoph has to declare the wage replacement benefits he receives in his tax return: the bodies paying them do not know how much Christoph's other income was, so the total tax cannot be withheld directly, as is the case with wages.
Remember your compulsory assessment, otherwise there is a threat of additional payments!
Because Christoph did not know this, he almost unknowingly evaded taxes. The tax office does not automatically write to everyone who is obliged to pay tax this time to make them aware of this. However, since it can be assumed that the offices communicate with each other, he would have to make additional payments later.
If you too have received wage replacement benefits, be it Corona-related or for other reasons, contact us by phone (02738/6888713) or write to us so that we can resolve the matter in the best possible way for all concerned. We are also happy to accept receipts digitally on your behalf.