Which income replacement benefits are subject to the progression clause?

Wage or salary replacement benefits are paid when your employer no longer pays the full salary for certain reasons. These benefits are tax-free, but they are subject to the progression clause. This means they are used to calculate the tax rate, which can result in the remaining income being taxed at a higher rate.

Why is the progression clause important?

Including wage replacement benefits in the progression clause can lead to a higher tax burden. Therefore, all affected benefits must be declared in the tax return.

Which wage replacement benefits are subject to the progression clause?

• Unemployment benefit I
• Short-time work allowance and seasonal short-time work allowance
• Insolvency benefit in the event of employer insolvency
• Parental allowance (under the Federal Parental Allowance and Parental Leave Act, but not the childcare allowance since 1 August 2013)
• Maternity benefit and maternity benefit supplement
• Sickness, injury, and transitional benefits for disabled persons or similar benefits
• Top-up amounts and partial retirement allowances (under the Partial Retirement Act or civil service law)
• Income security benefits for older employees (through the employment agency)

Reporting requirements and evidence

• Obligation to submit a tax return: If tax-free wage replacement benefits of more than 410 Euro per year were received, there is a legal obligation to submit a tax return.
• Certificate from benefit providers: The benefit providers, such as the employment agency or health insurance companies, issue a certificate for the tax office. This contains details of the benefits received and is electronically transmitted to the tax office.
• Benefits from the employer: Benefits such as short-time work allowance or maternity benefit supplements paid directly by the employer are listed in the printout of the electronic payslip.

Electronic reporting

Since 2011, benefit providers have been required to report the wage replacement benefits paid electronically to the tax office, including the tax identification number. This simplifies the processing of the tax return and reduces errors.

Conclusion: The tax-free payment of wage replacement benefits can still result in a higher tax burden due to the progression clause. Therefore, it is important to correctly declare all relevant benefits and use the provided evidence in the tax return. A tax programme such as Lohnsteuer kompakt can help to correctly record the information and calculate the tax impact.