SteuerGo FAQs

(2022) How are short-time work benefits and maternity pay taxed?

Short-time work allowance and maternity pay are not taxed, but they are subject to the progression clause. This means that receiving short-time work payments can negatively affect the employee in the tax assessment. The progression clause means that tax-free wage replacement benefits are added to the taxable income. A special tax rate is calculated for this amount, and this special rate is then applied to the taxable income - excluding the wage replacement benefits.

How do wage replacement benefits increase my tax rate?
Wage replacement benefits such as short-time work allowance or maternity pay supplement are paid to you tax-free. However, these benefits are subject to the progression clause. This means that the tax-free income is added to your income to determine your personal tax rate. Due to the now higher income, a higher tax rate is applied to your remaining income. This means you may have to pay additional taxes or receive a lower refund than in the previous year without the wage replacement benefit.

A single mother has an annual income of 26.000 Euro gross. She also receives 6.000 Euro parental allowance, making a total income of 32.000 Euro. The income tax for this would be around 5.706 Euro, which corresponds to a tax rate of 17.83 percent. However, this tax rate is only applied to the income without parental allowance, so the tax is 4.636 Euro.

Without the progression clause, the tax on an income of 26.000 Euro would only be 3.911 Euro. This means that for the actually tax-free parental allowance of 6.000 Euro, 725 Euro more in taxes must be paid. Additionally, church tax and (for high incomes) the solidarity surcharge may increase.

Without the progression clause, the tax on an income of 26.000 Euro would only be 3.911 Euro. This means that for the actually tax-free parental allowance of 6.000 Euro, 725 Euro more in taxes must be paid. Additionally, church tax and (for high incomes) the solidarity surcharge may increase.

In this way, income that falls below the basic allowance and is therefore actually tax-free is also taxed. If the actual income including wage replacement benefits exceeds the basic allowance, the increased tax rate can be applied. However, if the income remains below the basic allowance even with wage replacement benefits, it does not have to be taxed. If you only receive wage replacement income within a year, everything remains tax-free and the progression clause is not applied.

Tip: If you have to repay a wage replacement benefit later, for example because you previously received too much unemployment benefit, you should submit a tax return. This creates negative progression, as the repaid wage replacement benefit can reduce your tax rate. However, if you had no taxable income in the relevant year, it is not worth submitting the repaid wage replacement benefit, as this has no tax implications for you.

Tip: Many employers top up the short-time work allowance to 80, 90 or even 95 percent. So far, this top-up amount to the short-time work allowance is taxable as wages. In social security law, such supplements up to 80 percent of the last net salary are not considered wages and are therefore exempt from social security contributions (§ 1 Abs. 1 Nr. 8 SvEV).

Currently, employer supplements to short-time work allowance and seasonal short-time work allowance are tax-free due to the coronavirus, provided they do not exceed 80 percent of the difference between the target salary and the actual salary together with the short-time work allowance. This regulation is valid from 1.3.2020 to 30.06.2022. The tax exemption promotes the top-up of short-time work allowance by the employer, which is often agreed in collective agreements but also voluntarily due to the coronavirus crisis (§ 3 Nr. 28a EStG-neu).

The top-up amounts are subject to the progression clause, like the short-time work allowance itself, insofar as they are or were tax-free (§ 32b Abs. 1 Nr. 1 g EStG).