With the “Act on the Temporary Reduction of the Value-Added Tax Rate on Natural Gas Supplies via the Natural Gas Network,”the federal government has given employers the option to pay their employees a so-called inflation adjustment bonus of up to 3,000 euros, tax- and contribution-free. The bonus is part of the third relief package, which IG Metall also strongly advocated for.
The amendment to Section 3, Number 11c of the Income Tax Act gives employers, from October 26, October 2022 through December 31, 2024, to pay their employees, in addition to the wages already owed, subsidies and benefits in kind of up to 3,000 euros, tax- and social security-free, to help mitigate the impact of rising consumer prices.
Not a Government Benefit
The inflation adjustment bonus is not a government benefit, but rather a voluntary payment by the employer. This means that every employer may take advantage of the tax and social security exemption for such additional payments, but is not required to do so.
The legal basis for the inflation bonus can be either a voluntary commitment by the employer, a company agreement, or a collective bargaining agreement. Payment in installments is permitted. Furthermore, the accrual principle applies, according to which the income must be allocated for tax purposes to the calendar year in which it was received.
The inflation bonus follows the example of the COVID-19 bonus: During the COVID-19 pandemic, special payments from employers of up to 1,500 euros were exempt from taxes and social security contributions. That provision expired at the end of March 2022.
For all employees
The prerequisite for the tax- and social security-exempt inflation adjustment bonus is that it is granted in addition to the wages already owed. The bonus may also be paid in several installments. The employer may pay it to all employees, regardless of whether they work full-time or part-time, hold mini-jobs, are apprentices, dual students, or working students.
Works Council Has a Say
Although the works council cannot force the employer to grant the bonus, it does have a right of co-determination under Section 87(1)(10) of the Works Constitution Act regarding the determination of the distribution criteria—that is, the “how.”
Not Counted Toward Benefits Under SGB II and XII
The Unemployment Benefit II/Social Assistance Ordinance has also been amended to stipulate that the inflation adjustment is not counted as income for income-dependent social benefits.
If beneficiaries under Social Code Book XII (SGB XII) receive inflation adjustment premiums from their employers, such premiums must be exempted pursuant to Section 82(3), Sentence 3 of SGB XII . This applies to special payments made during the period from October 26, 2022, to December 31, 2024. This legal classification ensures consistency with the provisions governing basic income support for job seekers.
The total amount of benefits granted during the period from October 26, 2022, to December 31, 2024, is decisive for the 3,000-euro limit. This is intended to ensure that even employees whose employers provide multiple special payments can benefit from the full exemption. At the same time, it is intended to prevent circumvention of the maximum limit by splitting payment amounts into smaller installments.
