Christmas Money in Germany Faces Tax Changes, Leaving Employees with Less
Christmas money, a traditional German bonus, is facing changes this year. While 75% of employees still receive it, down from 87%, the tax implications are causing concern. Many employees found their net salary from Christmas bonuses reduced in 2021 due to higher taxes and social security deductions.
The tax calculation for Christmas money differs from regular salary. It's based on the expected annual labor income, not the monthly rate. This can result in a higher tax burden, leaving employees with less net income.
For instance, if an employee earns €3,000 monthly, their Christmas bonus of €600 would be taxed as if it were part of their €36,000 annual income, not just the €3,000 they've earned so far. This can push them into a higher tax bracket, reducing their net bonus.
Adding to the complexity, a labor court in Offenbach ruled that companies can deduct Christmas money for employee strike days, based on a works agreement. This further reduces the net amount employees receive.
To mitigate these issues, employers are exploring options to convert Christmas money into tax-free contributions to company pension schemes or material benefits. This can help reduce the tax burden and ensure employees receive more of their bonus. However, every fourth employee now goes without Christmas money, indicating a shift in employer practices.
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