Tax-free inflation premium in Germany: Up to 3,000 € extra - What employees should know

Employers are allowed to pay their employees a tax-free bonus of up to 3,000 euros to compensate for inflation. An overview shows what you should know about the bonus.

3,000 euros - that's how much employers are allowed to pay their employees as an inflation premium, free of taxes and duties. The permissible special payment is intended to relieve employees who are struggling with sharp increases in energy and food prices. Chancellor Olaf Scholz (SPD) had called on the country's employers to pay their employees the bonus, which is to remain tax and duty-free. But how does the payment of the inflation bonus work and what do employees need to bear in mind? An overview of the most important questions and answers.

Do all employees in Germany receive an inflation premium?

Unfortunately not - payment is entirely at the discretion of the employer.

How and by when can I receive the bonus if my employer has announced a payout?

Payment can be made from the day after the law is promulgated until December 31, 2024 - even in installments. So anyone who went empty-handed this year can still hope for the next two years. Employers can pay out the bonus with a simple note on the pay stub that it is related to inflation. "Special requirements" for the connection are not imposed.

An inflation premium received is not to be declared in the income tax return. It therefore always remains tax-exempt and does not affect the tax rate. However, the prerequisite for tax exemption is that the premium is actually paid as a support benefit to mitigate the financial consequences caused by inflation. Accordingly, the wage type must be clearly declared in the payroll.

Do employers have to pay the inflation premium to all employees - including mini-jobbers?

The inflation bonus may not only be paid to individual employees, but must go to all, if at all. The duration of the employment relationship also plays no role in the bonus. It is irrelevant whether the employee is employed full-time or part-time or whether the employment is marginal.

This is because the principle of equal treatment applies within a company. However, the payment of different sums is possible in principle. However, the employer needs objective, comprehensible reasons for different distributions. If there is a works council in the company, it has a right of co-determination. The distribution mode is then negotiated and regulated there.

What about employees on parental leave?

The bonus is not tied to an active employment relationship. This means that as soon as a company pays the inflation bonus, employees on parental leave or sick leave or sick pay are also entitled to it.

Can employers pay out the inflation premium as a Christmas bonus?

Here, the answer is also no. The bonus is in addition to the contractually agreed wage payments. So if a Christmas bonus is contractually due, the employer may not pay an inflation bonus instead. It is forbidden to transfer parts of the wage as a bonus, as this would avoid social security expenses and taxes. 

Does the inflation premium play a role in salary increases?

In some cases, a conflict between unions and employers is emerging here - some see it as an additional bonus, others as a substitute for a salary increase. At any rate, this is the case in the current collective bargaining negotiations in the metal and electrical industry. In the nationwide wage dispute, IG Metall is demanding eight percent more pay for a contract term of twelve months. The employers have offered a one-off 3,000 euros net for a term of 30 months, as well as an unquantified increase in the wage scales. So in the final effect: the inflation premium tax-free for the employers. The union rejects this offer, preferring long-term wage increases.

In the collective bargaining compromise of the roofing trade, the inflation premium already comes into play: in addition to wage increases, the employers pay their employees, according to the agreement, as compensation for sharp increases in the cost of living, an inflation premium in the amount of 950 euros, which will be transferred in two equal installments in the spring of 2023 and 2024.