Although you will receive any income replacement benefits without tax, these benefits have an effect on the progression clause. This means that the tax-exempt income is attributed to your income to determine your personal tax rate. Due to the now higher taxable income, there is a higher tax rate, with which your remaining income is then taxed. For example, you may have to pay additional taxes or receive a lower refund than in the previous year without compensation.
Example: A single mother has an annual gross income of 26.000 Euro. In addition, she will receive 6.000 Euro parental allowance. That makes a total income of 32.000 Euro. In return, the income tax would amount to 6.198 Euro, which corresponds to a tax rate of 19,4 percent. With this tax rate, however, only the income without parental allowance is taxed, so that the tax amounts to 5.044 Euro. Without a progression reservation, the tax for an income of 26.000 Euro would be only 4.333 Euro. This means: For the actually tax-free parental allowance of 6.000 Euro, 711 Euro more must be paid in taxes (5.044 Euro less 4.333 Euro). In addition, the solidarity surcharge and, if applicable, church tax will be increased.
In this way, income is also taxed, which is actually lower than the basic tax exemption and would therefore remain tax-free. If the actual income including wage compensation exceeds the basic tax exemption amount, the higher tax rate can be applied. However, if the income remains below the basic tax-free allowance, even with wage replacement benefits, it does not have to be taxed.
If you only receive income in lieu of wages within one year, everything remains tax-free and the progression clause is not applied.
Tip: If you have to pay back a wage replacement benefit at a later date, for example because you have received too much unemployment benefit in advance, you should file a tax return. This is because a negative progression arises here, because the repaid wage replacement benefit can reduce your tax rate. However, if you do not have any taxable income in the year in question, it is not worthwhile to submit the refunded salary compensation, as this will not have any tax consequences for you.