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The German news reports that the employer and employee representatives have reached a new collective labour agreement covering metal and electricity industries. I was surprised by on aspect of the agreement:

Hinzu kommen steuerfreie Einmalzahlungen von insgesamt 3000 Euro.

Translation:

Additionally there are tax-free one-off payments of in total 3000 Euro.

I can see why both parties appreciate the tax-free aspect, but how can they decide that? Normally all income is subject to income tax and only the government could make exceptions. Is the government involved or is there some other way in which an employer can decide that an employee needs to pay no income tax for a particular special payment?

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    I would like to also mention that sometimes people might talk about a "tax-free payment" in the sense of: the payment amount is 3000 euros before tax is subtracted.
    – user253751
    Nov 19, 2022 at 7:37

2 Answers 2

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certain kinds of payments just are tax-free

There are several kinds of tax-free special payments in germany, such as certain types of additional payments (for example "Vermögenswirksame Leistungen" and "Steuerfreibeträge"), or gifts within a certain value (e.g. goods/services up to 50 € a month).

In this case, they most likely fully use the "Inflationsausgleichsprämie", which is tax-free up to 3000 €.

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    To make this explicit: the unions/employers can't invent new tax-free payments. A bonus is usually not tax-free. But this year tax law allows for a special one-time tax-free payment. The result of the negotiation is that employers are required to use this opportunity to make a tax-free payment.
    – amon
    Nov 18, 2022 at 20:56
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    @amon there are also other options to get some "Steuerfreibeträge" used, or "Vermögenswirksame Leistungen".
    – Trish
    Nov 18, 2022 at 21:06
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    Inflationsausgleichsprämie is exactly the point here. This is a special law, enacted this summer because of the inflation, which allows employers a one-time, tax free, payment of up to 3000€ until the end of 2024. So the agreement really is a "do what that specific law allows you to do once", and would not work in the general case. Nov 19, 2022 at 11:33
  • @GuntramBlohm even otherwise, up to 50€ a month in service, goods or gift cards are tax free. For special occasions (employee's birthday, wedding) 60€ are free.
    – Trish
    Nov 19, 2022 at 12:11
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While that's not what is happening here, as explained in Trish's answer, there is also another way in which such payments can be (made) "tax-free": the employer simply pays enough that the employee is left with 3000€ after taxes.

While this is not, technically, "tax-free", it has the same effect for the employee: they get 3000€, and thus is often called "tax-free" in the press.

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  • Not exactly. Receiving, say, 3500€ instead of 3000€ because the 500€ would be used by the tax effectively leaves the recipient with 3000€. Except if they cross a tax level where the taxation is higher (for the part that is above the threshold). In France, this could, worst case, mean 570€ (if the 3000€ are entirely above the worst threshold (19% difference))
    – WoJ
    Nov 19, 2022 at 11:29
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    @WoJ Are you sure that's how it works? Each tax rate applies only to the portion of income that falls above the corresponding threshold. It looks like the highest tax bracket is 45%, so the worst case is that you are paid €3,500 but only get to keep €1,925. Nov 19, 2022 at 12:36
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    @Tanner-reinstateLGBTpeople (cont'd) Of course if all of this is taken into account individually for each employee then fine, but this would be extraordinarily complicated (and this is one of the reasons why we talk about gross salary instead of net salary in negotiations)
    – WoJ
    Nov 19, 2022 at 16:16
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    How would the employer know how much tax each employee pays? I don't see how this could work in practice.
    – gerrit
    Nov 19, 2022 at 21:59
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    @Trish But the Einkommenssteuer they withhold is just an estimate. The final tax I'm paying depends on my total income, including sources my employer doesn't know about, as well as deductables, which is why many people get money back after filing their tax declaration.
    – gerrit
    Nov 19, 2022 at 22:18

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