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Inflation Premium in Germany: Tax-Free Payments to Employees of up to EUR 3,000 Possible

Inflation Premium in Germany: Tax-Free Payments to Employees of up to EUR 3,000 Possible

The German population has noticed and felt the effects of the rising prices for gas and food. In order to contain the burdens stemming from the currently high inflation, the German government has initiated an inflation compensation premium. This is part of the third relief package from the German government. This blog text explains everything you need to know relating to the premium.

Five key points about the premium

  • The bonus earmarks up to EUR 3,000 that employers can pay their employees, exempt from tax and duty.
  • The benefit period for this is limited from October 26, 2022 to December 31, 2024.
  • This tax allowance totaling EUR 3,000 can be paid out in several individual installments over a longer period within the time limit.
  • It is mandatory that the payment be an additional benefit to the usual wage. In other words, under no circumstances may the wages or other special payments (e.g. “13th-month pay”) be reduced or replaced on the basis of the bonus paid. Rather, the benefit must occur “on top.”
  • Not only full-time employees, but also part-time employees, mini-jobbers, working students, trainees and short-term employees can benefit from the bonus.

Not a state benefit, but a voluntary benefit provided by the employer

However, this is not a government benefit. Rather, it is a voluntary payment on the part of the employer. In concrete terms, this means that the bonus certainly does not have to be paid to all employees. The employee, therefore, essentially has no claims regarding the payment of the bonus. However, a voluntary commitment by the employer or any collective bargaining or company agreements may result in something different.

Advantages for employees and employers

The advantage of the premium for employees is obvious. They can look forward to a cash payment that appears net (completely tax- and duty-free) on their pay slip and then also in their bank account.

Although the employer must pay for the bonus themselves, the payment can improve the working atmosphere in the current energy price crisis and also have a positive effect on employee motivation. In addition, such a payment also brings tax benefits. Namely, the employer has the option of claiming this as a business expense.

WINHELLER is available to assist you with the inflation premium

Do you have questions about the inflation compensation premium? As an employer, are you uncertain if the payment is actually an “additional benefit”? Do you need help with your tax return in this regard? Feel free to contact us. Our experienced team of experts is prepared to provide you advice and support.

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Stefan Winheller

Attorney Stefan Winheller has specialized in tax law for about 20 years, especially in the areas of cryptocurrencies, foundations/nonprofits and international tax law.

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