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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?

gerrit
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2 Answers2

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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 €.

Trish
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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.

Jörg W Mittag
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