German legislation has decided on an inflation bonus of up to 3000 euros. Employers can pay it tax-free to their team members from 26 October. All you need to know!
The inflation compensation is part of the third relief package in the Law on the Temporary Reduction of the Value Added Tax Rate.
The scheme has an expiry date: the premium remains tax and social security free if employers pay it before 31 December 2024.
What is the advantage of the inflation premium for employers?
Those who want to relieve their team financially in times of crisis usually have two options: a salary increase or a one-off payment. The salary increase entails permanent extra costs; with the one-off payment, taxes, and social security contribution deductions. The latter is now omitted for payments up to 3000 euros – the employee thus receives the entire bonus.
It is a popular opinion that the inflation premium might work as a bridging measure in a crisis. Moreover, employers could temporarily relieve their team members through payment and postpone permanent salary increases.
And even though most companies in Germany are willing to pay an inflation premium. Many of them simply might not be able to afford it.
What are the conditions for no tax to be due?
The most important prerequisite is that the inflation premium must be in addition to the regular salary. Furthermore, there must be no conversion of salary, for example, 300 euros can be deducted from a gross salary of 3,000 euros and paid as a bonus. That will not do.
Employers must state on the pay slip that the tax-free payment is the inflation compensation premium.
Can employees claim the inflation premium?
Employees are not entitled to an inflation bonus. The bonus is voluntary. Whether and how much an employer wants to pay team members as inflation compensation is up to them.
Can employers also pay the bonus in kind?
According to the law, employers can also pay the bonus in kind. Anything that relieves employees in times of inflation is conceivable, for example:
- Petrol vouchers
- Goods vouchers
- Vouchers from the energy supplier
- meal vouchers for the canteen
To avoid paying taxes, such vouchers are normally subject to the limit of 50 euros per month. Besides, tax-free vouchers of up to 3000 euros are possible with the inflation premium until the end of 2024.
Are employers only allowed to pay the bonus to individual employees?
Pay employee Kleo an inflation compensation of 2,000 euros, and the rest of the team goes away empty-handed? A bad idea. The principle of equal treatment applies to such payments. Therefore, employers are not allowed to favor individual team members or certain groups over others.
Nevertheless, different payments are possible: “If you want to make difference, you must have an objective reason for doing so. This could be, for example, that higher earners do not need the inflation compensation premium, that the company wants to strengthen the lower income categories.” It is also conceivable to link the amount of the bonus to income.
According to some tax consultants, companies can define different categories – and thus, for example, pay low earners more than higher earners, or leave out the latter.
Does the inflation premium also apply to mini-jobbers, trainees and working students?
Mini-jobbers, trainees and working students may also receive the inflation premium. The principle of equal treatment prohibits paying the bonus only to full-time workers who have completed their training. Here, too, employers would need a valid reason to exclude individual groups.
Are employers allowed to convert other payments into an inflation premium?
As with the Corona premium, employers are not allowed to convert regular wages. This means that contractually agreed Christmas bonuses or other regular payments may not be re-declared as inflation bonuses. If, for example, a company pays Christmas or holiday bonuses three years in a row without indicating that it is a benefit without legal entitlement for the future, this results in a claim for regular payment. And these benefits must not translate into an inflation premium either. Therefore, it is recommended to first checking the previous payment practice.
Similarly, the benefits that the company gives regularly should differ from the inflation premium.
What else can you do to beat Inflation?
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