Tax consideration of compensation payments
For a long time, earnings replacement benefits were also referred to as earnings replacement benefits. These serve to compensate for the regular income from work and can usually only partially replace this. These statutory social insurance benefits can initially be obtained tax-free. However, the progression proviso will still be taken into account for tax purposes.
What are the remuneration benefits?
Compensation payments are made when an employee no longer receives his or her regular income or only receives it to a lesser extent for a period of time. In Germany, the statutory social insurance providers are responsible for the payment of earnings replacement benefits.
About the legal Health insurance sick pay is paid as a replacement benefit, for example, if an incapacity for work or rehabilitation lasts longer than the continued payment of wages. The maternity allowance is also paid through the statutory health insurance.
Other services that replace the remuneration at least temporarily are, for example, the transitional allowance, which depending on the case from the statutory
pension insurance, accident or unemployment insurance is paid. the Accident insurance is also responsible for injury benefits and unemployment insurance provides compensation benefits like that Unemployment benefit, short-time work benefit, partial unemployment benefit as well as insolvency benefit if the employer is insolvent.
Tax consideration through progression reservation
You must state any compensation payments you have received in your tax return. Evidence does not have to be attached. Because the responsible social security agency automatically transmits the data electronically to the tax authorities. The data is transmitted in the following year by the 28th February.
All payments received from the previous year must be stated in the tax return. This also applies to payments for the previous year that are made up to the 10th January were paid out. If you do not receive the payments until later, they will be stated in the following tax return. Any reimbursement from you to the social security agency must also be reported, as this will allow you to reduce the tax burden.
Compensation payments are only taken into account for tax purposes within the framework of the progression proviso. Accordingly, these services are initially tax-free. However, you are required to determine your personal tax rate.
In detail, this means that the compensation payments from social insurance institutions are initially added to the other, taxable income. This tax consideration only serves to determine the income tax rate. This results in a higher tax rate. With this increased tax rate, the tax burden to be paid is then determined by deducting the compensation payments from the taxable income.
Accordingly, compensation payments are not taxed directly. However, due to the higher tax rate, you as a taxpayer usually have to pay more tax than if you had not received the benefits. Nevertheless, these benefits are better off from a tax point of view than many other types of income, such as regular earned income.
If you are receiving wage replacement benefits, you should inform yourself in good time about the ...
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