SteuerGo FAQs

(2023) What is the progression clause?

Tax-free wage replacement benefits - also known as income replacement benefits for non-employees - and tax-free foreign income are included in the progression clause (§ 32b para. 1 no. 1 EStG).

The progression clause means that the tax-free replacement benefits are added to the taxable income. A special tax rate is then determined for this amount. The taxable income - without the wage replacement benefits - is then taxed at this special tax rate (§ 32b para. 2 EStG). Overall, the progression income leads to higher taxation of your other income.

Most wage replacement benefits are not found in the employer's income tax statement. These include according to § 32b EStG:

• Transitional retirement benefit
• Transitional retirement benefit compensation
• Unemployment benefit under the Military Pensions Act
• Unemployment benefit
• Integration assistance under the Employment Promotion Act
• Integration assistance under the Social Code
• Parental allowance under the Federal Parental Allowance and Parental Leave Act
• Compensation for loss of earnings under the Infection Protection Act
• Insolvency benefit
• Sickness benefit from statutory health insurance
• Sickness benefit under the Farmers' Health Insurance Act
• Payments from the European Social Fund to top up bridging allowances
• Benefits under the Social Code that serve as a means of subsistence
• Maternity benefit
• Special support under the Maternity Protection Act
• Tax-free top-up amounts or supplements under § 3 no. 28 EStG
• Partial unemployment benefit
• Transitional allowance
• Maintenance allowance
• Compensation for loss of earnings under the Federal Epidemic Act
• Injury benefit
• Care sickness benefit under the Federal Pensions Act
• Allowance under the Maternity Protection Ordinance or corresponding state regulations
• Allowance for maternity benefit

 

All tax-free benefits not listed in § 32b EStG are also not subject to the progression clause and therefore do not need to be declared in the tax return. This includes unemployment benefit II (Hartz IV).

Note: The "Corona Tax Assistance Act" made employer subsidies for short-time work benefits and seasonal short-time work benefits tax-free, provided they did not exceed 80 percent of the difference between the target income and the actual income together with the short-time work benefits. This regulation initially applied from 1.3.2020 to 31.12.2020. The tax exemption for employer subsidies for short-time work benefits was then extended until 30.06.2022. The employer subsidy has been taxable again since July 2022.