Millions of Short-Time Workers Face New Tax Obligations Next Year
Short-term employees submitting tax returns en masse for the year 2021, according to FDP's recent analysis.
Gearing up for a fiscal challenge, millions of individuals on short-time work will be filing a tax return for the first time next year. As calculated by the FDP in the Bundestag, roughly half of this demographic will be submitting tax declarations to the tax office for the first time, according to reports from Funke media group's newspapers.
The key driver behind this requirement stems from a rule in the Income Tax Act. This ruling stipulates that all recipients of tax-exempt wage replacement benefits, including short-time work allowance, must submit a tax return, regardless of their income level. This mandate extends to employees in lower-income jobs as well. In some instances, filing tax returns could lead to additional payments for short-time workers, the FDP suggests.
The rate of taxation before and after the short-time work phase is the primary cause. The so-called progression allowance in the Income Tax Act comes into play here. Market expert for the FDP, Markus Herbrand, urged exemption during the pandemic for the millions of employees who find themselves in short-time work solely due to the coronavirus crisis. He emphasized that employees on short-time work should not be obligated to file tax returns.
The FDP's federal budget application of 2021 states that the substantial increase in additional tax returns could create "unnecessary workload and cost" for the tax administration. The FDP MP criticized the federal government for failing to address the burden on citizens and the additional strain on the tax administration.
Herbrand underscored that millions of short-time workers are being left uninformed about potential tax demands in the near future. "Unfairly," millions of people are being set up for unexpected tax obligations next year. Neither Federal Finance Minister Olaf Scholz nor Federal Labour Minister Hubertus Heil (both SPD) have shown interest in alleviating the burden on citizens during this challenging time.
For the majority of employees, employers issue a Lohnsteuerbescheinigung (wage tax certificate) by February 28 of the following year, which is necessary for filing tax returns[2]. In the case of short-time work, recipients must include the Kurzarbeitergeld (short-time work allowance) they receive as part of their taxable income in their tax returns. Kurzarbeitergeld is subject to income tax but is exempt from social security contributions[1]. However, there is no current exemption from filing tax returns solely due to receiving Kurzarbeitergeld during the pandemic[3].
Compared to the standard circumstances, Kurzarbeitergeld has played a significant role in mitigating the economic impact of the pandemic for many workers who have experienced reduced working hours. Even though Kurzarbeitergeld is subject to income tax, the German government acknowledged the extraordinary conditions imposed by the pandemic. Despite the mountain of concerns regarding the tax demands, no formal regulations have been enacted to provide broad exemptions for individuals on short-time work solely due to receiving Kurzarbeitergeld during the pandemic[3].
Despite the multitude of challenges associated with the pandemic and its economic repercussions, short-time workers should continue to stay informed about their tax obligations and deadlines. By ensuring they file their tax returns correctly, short-time workers may be able to secure any potential refunds they are entitled to[1][2][4].
Short-time workers, who are obligated to file tax returns due to receiving tax-exempt wage replacement benefits such as Kurzarbeitergeld, might find themselves facing additional payments next year. Unaware of this development, millions of short-time workers could be unexpectedly confronted with new tax obligations in the near future.
