Numerous changes in taxation of employees planned
6/15/2022
The German federal government is planning a range of legislative changes pertaining to how employees are taxed. This text discusses the plans likely to have the greatest impact on employees.
Remote working allowance: During the coronavirus pandemic, many employees have been forced to work from home without having a formal room as a “home office”. To allow these people, like those who work from a formal home office, to deduct the expenses (particularly additional expenses) incurred for business or professional reasons, a new deduction was created for 2020 and 2021. Under the new rule, employees could deduct a flat allowance of €5 per calendar day (up to a maximum of €600 per year) when they performed all of their work-related activity exclusively from home. The German federal government is now pushing to extend the rules on the remote working allowance until December 31, 2022. Policymakers are also discussing raising the maximum amount that can be deducted.
Coronavirus bonus for healthcare professionals: Special bonuses granted by employers to employees working at certain facilities and institutions (especially hospitals) based on German federal or state regulations in recognition of their extraordinary efforts during the coronavirus crisis are to be made tax-exempt up to a total of €3,000. This tax advatage is to apply to special bonuses granted during the period from November 18, 2021, until December 31, 2022. Taxpayers will be able to claim this exemption in addition to the tax exemption for coronavirus aid of up to €1,500, which expired as of March 31, 2022.
Employer supplement to short-time work allowance: short-time work allowances are tax-free as a substitute for wages. The contributions employers pay in addition to short-time work allowance, to seasonal and transfer short-time work allowances are also tax-exempt in principle where they are paid, together with the short-time work allowance, for payroll periods starting after February 29, 2020, and ending before January 1, 2022, and provided that they do not exceed 80% of the difference between the original and actual pay. The time limit is to be extended by six months, so the rule applies to payroll periods ending before July 1, 2022.
Commuting allowance for long-distance commuter: retroactively to January 1, 2022, the commuting allowance is to be increased to €0.38 per full kilometer for commutes of 21 kilometers or more between the home and the workplace. The move pulls forward the increase that was originally intended to apply starting in 2024. This will also have a positive effect on employees in cases where mobility bonuses are granted and whose taxable income falls below the basic exemption amount, so they do not pay any taxes. The bonus amounts to 14% of the increased commuting allowance. Assessment basis of the mobility bonus is in principle the increased commuting allowances starting at 21 kilometers between the home and workplace. However, this applies only to the extent that the increased commuting allowances starting at 21 kilometers of distance between the home and workplace and the other income-related expenses associated with income from wages exceed the standard allowance for employees, which currently amounts to €1,000.
Standard allowance for employees: The standard allowance for employees is to be increased from the current level of €1,000 to €1,200 per year, retroactively as of January 1, 2022. There are no plans to raise the standard allowance for recipients of pension payments (€102 per year), by contrast.
Basic tax-free amount: the basic tax-free amount for income tax is to be raised from the current level of €9,984 to €10,347 for single filers and from €19,968 to €20,694 for married couples and those with equivalent status. This will benefit employees and non-employees alike.
Remote working allowance: During the coronavirus pandemic, many employees have been forced to work from home without having a formal room as a “home office”. To allow these people, like those who work from a formal home office, to deduct the expenses (particularly additional expenses) incurred for business or professional reasons, a new deduction was created for 2020 and 2021. Under the new rule, employees could deduct a flat allowance of €5 per calendar day (up to a maximum of €600 per year) when they performed all of their work-related activity exclusively from home. The German federal government is now pushing to extend the rules on the remote working allowance until December 31, 2022. Policymakers are also discussing raising the maximum amount that can be deducted.
Coronavirus bonus for healthcare professionals: Special bonuses granted by employers to employees working at certain facilities and institutions (especially hospitals) based on German federal or state regulations in recognition of their extraordinary efforts during the coronavirus crisis are to be made tax-exempt up to a total of €3,000. This tax advatage is to apply to special bonuses granted during the period from November 18, 2021, until December 31, 2022. Taxpayers will be able to claim this exemption in addition to the tax exemption for coronavirus aid of up to €1,500, which expired as of March 31, 2022.
Employer supplement to short-time work allowance: short-time work allowances are tax-free as a substitute for wages. The contributions employers pay in addition to short-time work allowance, to seasonal and transfer short-time work allowances are also tax-exempt in principle where they are paid, together with the short-time work allowance, for payroll periods starting after February 29, 2020, and ending before January 1, 2022, and provided that they do not exceed 80% of the difference between the original and actual pay. The time limit is to be extended by six months, so the rule applies to payroll periods ending before July 1, 2022.
Commuting allowance for long-distance commuter: retroactively to January 1, 2022, the commuting allowance is to be increased to €0.38 per full kilometer for commutes of 21 kilometers or more between the home and the workplace. The move pulls forward the increase that was originally intended to apply starting in 2024. This will also have a positive effect on employees in cases where mobility bonuses are granted and whose taxable income falls below the basic exemption amount, so they do not pay any taxes. The bonus amounts to 14% of the increased commuting allowance. Assessment basis of the mobility bonus is in principle the increased commuting allowances starting at 21 kilometers between the home and workplace. However, this applies only to the extent that the increased commuting allowances starting at 21 kilometers of distance between the home and workplace and the other income-related expenses associated with income from wages exceed the standard allowance for employees, which currently amounts to €1,000.
Standard allowance for employees: The standard allowance for employees is to be increased from the current level of €1,000 to €1,200 per year, retroactively as of January 1, 2022. There are no plans to raise the standard allowance for recipients of pension payments (€102 per year), by contrast.
Basic tax-free amount: the basic tax-free amount for income tax is to be raised from the current level of €9,984 to €10,347 for single filers and from €19,968 to €20,694 for married couples and those with equivalent status. This will benefit employees and non-employees alike.