Within the „Steuerreformgesetz I2019/20“ a supposing minor change has been made, which, however, has a major impact on payroll processing.
Generally, the two special payments (holiday payment and christmas bonus) can be considered with a lower tax rate (of 6%; up to a certain amount, instead of the taxation according to tax scale). In addition to these two special payments, other payments – such as bonuses and commissions – can be also considered with the beneficial lower tax rate, under certain circumstances. This maximum amount, which can be considered with the lower tax rate, however, is restricted – this restriction is equal to one sixth of the yearly earnings (this is why, this is named the “year sixth”).
Since the exact yearly sixth can be only finally calculated once all payments have been made (i.e. at the end of the year), this yearly sixth is calculated “as a projection” during the year.
§77 EStG has been amended, by adding subparagraph 4a. This regulates from 2020 onwards, that after receiving the last payment (i.e. with exit or by end of the year) the yearly sixth has to be calculated newly based on the actual values (i.e. not the projected calculation of the yearly sixth is taken into consideration, but the actual values that the employee has received during this employment/during this year). If the actual value is lower, i.e. the fictitious yearly sixth has been higher, this has to be corrected and the employee has to pay back taxes (since payments have been considered with 6% taxation, although the restriction has been used up and the taxation should have been according to the tax scale).
Although this regulation’s aim has been initially to reduce certain forms of „tax optimizations“, it is impacting quite a few employees, which are facing changes during the year (e.g. change in working time, change in salary, unpaid leaves, etc.). Currently, only statutory maternity leave and voluntary parental leaves (incl. dad’s months) are excluded from this regulation. All other payment free times (such as long term sickness with 50% or no payment, unpaid vacation) can, however, impact the yearly sixth and trigger a back payment when leaving the company resp. at the end of the year. As mentioned prior, also changes in working time, variable payout of overtime or other variable payments can impact the yearly sixth and therefore trigger the control sixth and potentially a pay back of taxes.
What do you have to do?
We are taking care of the correct calculation and are considering the control sixth automatically for an exit resp. at the end of the year. However, we strongly advice you to inform the employees on time that in December employees might be lower pay outs compared to previous months, so that the number of questions or complaints can be reduced at the end of the year/with exit.