The German government has adopted a number of measures to cushion the burden of soaring energy prices in the wake of the Russian military aggression. These include the so-called “compensation bonus for inflation”.
The compensation bonus for inflation is a way for companies to pay their employees a tax- and social security-free bonus to mitigate the rising gas and energy prices.
This time, this does not only affect systemically significant occupational groups, but has been extended to all occupational groups and employees of all kinds. Therefore, so-called “mini-jobs” (marginally employed persons) in particular also benefit from the inflation compensation premium. The bonus is limited to a maximum amount of EUR 3,000 and can be paid out individually, in full or in partial amounts, in the period between October 26, 2022 and December 31, 2024. It is also possible for several (different) employers to pay it out.
The new regulation can be found in § 3 No. 11c EStG. It states:
“Tax-free are… benefits granted by the employer in the period from October 26, 2022 to December 31, 2024 in the form of subsidies and benefits in kind to mitigate the increase in consumer prices up to an amount of EUR 3,000.00 on top of the wages owed in any case.”
The payment of the compensation bonus for inflation is voluntary for all employers. No statutory entitlement can be derived from the new regulation. The German government has chosen a very long benefit period in order to ensure maximum flexibility for companies.
In order for the inflation compensation bonus to be paid out free of tax and social security contributions, it must actually be received by the employee in the period from October 26, 2022 to December 31, 2024. The strict inflow and outflow principle of Section 11 EStG applies here. A subsequent calculation in January 2025 for premiums that are also not paid out until January 2025 is therefore ruled out and is subject to tax and social security contributions in full.
An important prerequisite for tax- and social security-free special payments is that they must be “additional,” i.e., they must be a completely voluntarily paid benefit by the company to its employees. There must be no corresponding entitlement to a salary. Salary conversion is also excluded.
The benefit is therefore excluded if
- The salary is temporarily reduced and then increased again after the inflation compensation premium has been eliminated
- The premium is intended to pay special payments, bonuses or other salary components already owed “as a substitute”
- A premium is paid and in return the current salary or other special payments are reduced or “replaced”
No special requirements are placed on the payment of the inflation compensation premium. Whether and to what extent individual employees are affected by the increased prices is irrelevant. Evidence is not required for this. It must only be evident from the payment or transfer to the employee that this is being paid as inflation compensation for the increased prices. This alone should be well documented for future payroll tax audits. Recording in the payroll account (Section 41 (1) Sentence 3 EStG, Section 4 (2) No. 4 LStDV) can ensure that the special payment is clearly and unambiguously identifiable in the event of an audit.
The compensation bonus for inflation (as part of the third relief package) can be paid to (temporary) employees working full-time/part-time, as well as to temporary workers, trainees or mini-jobbers. It can also be paid to employees on short-time working and those receiving sick or parental benefits.
A shareholder-manager who is employed by the company can also receive the bonus. In the case of shareholder-managers, however, the general requirements (arm’s length principle, clear and written agreement in advance) must be strictly adhered to. The arm’s length principle must also be applied to employed spouses or other closely related individuals.
The tax office Alexia Huber & Partner Steuerberatungsgesellschaft mbB in Munich handles the ongoing payroll accounting (1 – 250 employees) of our clients and prepares the payrolls with DATEV. Our competent tax consultants in Munich and Deggendorf advise our clients on payroll tax topics and issues. In addition, we assist with external payroll tax audits as well as audits by social insurance agencies. You can request a non-binding tax consulting offer for your payroll accounting at https://www.steuerberaterin-huber.de/en/tax-consulting-fee/for-companies-or-self-employed/