(Last Update: 9 April 2020)
In a press release dated April 3, 2020 (only available in German), the Federal Ministry of Finance announced that, after consultation with the federal states, bonus payments granted to employees between March 1, 2020 and December 31, 2020 will be exempt from wage tax and social insurance deductions. This is intended to ensure that bonus payments granted by employers to their employees on the basis of extraordinary work during the Corona crisis reach the employees without deductions. This procedure has now also been formally laid down in an administrative letter from the Federal Ministry of Finance dated April 09, 2020.
The exemption from wage tax and social insurance deductions is limited to a bonus amount of EUR 1,500.00 per employee. Furthermore, it is necessary that the bonus payment is granted in addition to the agreed and owed wage or salary of the employee, i.e. that it is actually an additional bonus payment. The payment must be recorded in the payroll account and can also be granted in the form of a payment in kind. Other tax-free payments are not affected by this exemption and can still be granted. However, the administrative letter from the Federal Ministry of Finance clarifies that additional payments made by the employer for short-time work (Kurzarbeit) are not covered by the exemption.
As the Ministry of Finance of the State of Baden-Wuerttemberg has again emphasized in a press release (only available in German), the employee's occupation is not the decisive factor for the use of the exemption.
The Federal Government and the federal states hope that this approach will also enable the state to express its appreciation of the performance of the respective employees. The approach is in principle a positive gesture. Nevertheless, a proper legislative procedure instead of an administrative letter would have been desirable to provide legal security for this course of action, also because the reference to tax exemptions of public grants under Sec. 3 no. 11 Income Tax Act (Einkommensteuergesetz) chosen in the administrative letter from the Federal Ministry of Finance is not very convincing from a legal point of view.
An overview of the conditions for exemption from wage tax and social insurance deductions:
- Bonus payment (or bonus payment in kind), that is, no part of the wage or salary already agreed
- Period: Grant (payment) between March 01, 2020 and December 31, 2020
- Amount: in total up to EUR 1,500.00
- Recording in the employee's payroll account
Marc Krischer, Dr. Gunnar Knorr