Is sick pay taxable?
If you are ill for a longer period of time and can therefore no longer work, you will usually receive sick pay from your health insurance after six weeks. Sick pay does not in itself constitute a taxable income, but it is subject to the so-called progression proviso.
Sick pay is a wage replacement benefit. Like unemployment benefit, for example, sickness benefit is not a taxable income. However, it can increase the personal tax burden from the taxable income overall, as it is subject to the progression proviso.
Sick pay and taxable income according to the Income Tax Act
- According to Section 3 no. 1 letter a) Income Tax Act (EStG) concerns services from a Health insurance about tax-free income. So the sick pay itself is not taxed.
- However, tax-free income can also have an impact on the individual tax burden if it is subject to the so-called progression proviso. According to § 32b para. 1 no. 1 letter b) EStG also applies to sick pay.
- The tax rate to which the income is subject depends on the amount of income. For example, if you receive sick pay in one year and have earned income, the sick pay is added to the taxable income in order to determine the tax rate.
- The taxable income is then taxed at this tax rate. In this respect, the sickness benefit affects the amount of the tax rate to which the remaining taxable income is subject.
- This so-called progression proviso also applies to other income such as unemployment benefit, short-time work allowance or transition allowance.
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Special allowance for health insurance costs
- The sick pay or the contribution portion of the health insurance contribution that is attributable to the sickness benefit plays a role.
- According to § 10 para. 1 No. 3 EStG, the contributions to health insurance also belong to the deductible special expenses. If the contributions to a statutory health insurance also result in a sickness benefit claim, the respective contribution must be reduced by 4%, see. § 10 para. 1 No. 3a sentence 4 EStG (as of 2012).
Sick pay is not subject to income tax. However, the progression proviso can result in an individually higher tax rate.
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