Wage tax calculation using the daily tax table

As of 1 Ja­nu­ary 2023, it is re­qui­red that the wage tax on cur­rent wa­ges is not to be de­ter­mi­ned ac­cor­ding to the monthly tax ta­ble but ac­cor­ding to the daily tax ta­ble, if the em­ploy­ment re­la­ti­ons­hip exis­ted th­roug­hout the month and the em­ployee re­cei­ves wa­ges in a month partly ta­xable in Ger­many and partly ex­empt from wage tax.

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Affected employees

This in­clu­des ca­ses of in Ger­many un­res­tric­ted ta­xable em­ployees who, in ad­di­tion to their Ger­man wa­ges, also earn in other coun­tries tax-free wa­ges in a month ac­cor­ding to a dou­ble ta­xa­tion agree­ment (DTA) or the EU For­eign Ac­tivity De­cree. Howe­ver, the ap­pli­ca­tion of the daily wage tax ta­ble only has the ef­fect of a po­ten­tial tem­porary wage tax over­pay­ment since an ad­just­ment is made via the per­so­nal in­come tax as­sess­ment (Note: Man­datory as­sess­ment due to so-cal­led pro­gres­sion in­come).

Ma­te­rial im­pact ari­ses from the ap­pli­ca­tion of the daily wage tax ta­ble for em­ployees sub­ject to li­mited tax lia­bi­lity in Ger­many, i. e., ge­ne­rally those who earn wa­ges sub­ject to li­mited tax lia­bi­lity th­rough their ac­tivity in Ger­many, whe­reu­pon the tax wi­th­hol­ding by the Ger­man em­ployer is con­side­red fi­nal (Note: Howe­ver, there is the pos­si­bi­lity of an elec­tive as­sess­ment ac­cor­ding to Ger­man In­come Tax Code).

Calculation of the relevant days for the application of the daily rate table

The Ger­man Tax Aut­ho­ri­ties com­men­ted on the cal­cu­la­tion of wage tax ba­sed on the daily rate ta­ble in an email from 12 Oc­to­ber 2023 to the Ger­man Cham­ber of Com­merce and In­dus­try, sta­ting that two ap­proa­ches are pos­si­ble. These dif­fer in whe­ther, in ad­di­tion to the days worked in Ger­many in a month, the non-working days are con­side­red only in the ra­tio of the working days in Ger­many to the to­tal working days (op­tion 1) or spe­ci­fi­cally ac­cor­ding to the non-working days spent in Ger­many (op­tion 2).

De­pen­ding on whe­ther an em­ployee whose wa­ges are to be ta­xed ac­cor­ding to the daily rate ta­ble spends his non-working days pre­do­mi­nantly in Ger­many or in ano­ther coun­try, one of the op­ti­ons may be more ad­van­ta­ge­ous.

Note: In prac­tice, em­ploy­ers of­ten face the pro­blem of not kno­wing where their em­ployees spend their non-working days. In a sub­mis­sion da­ted 18 Ja­nu­ary 2024, eight trade as­so­cia­ti­ons in Ger­many pro­pose a sim­pli­fi­ca­tion re­gu­la­tion as an un­bu­reau­cra­tic so­lu­tion.

With a let­ter da­ted 26 Fe­bru­ary 2024, ad­dres­sed to a re­pre­sen­ta­tive of the Fe­deral As­so­cia­tion of Ger­man Banks, the Ger­man Tax Aut­ho­ri­ties ap­prove such a sim­pli­fi­ca­tion re­gu­la­tion for de­ter­mi­ning the to­tal working days:

• The to­tal working days in a month can be set at a flat rate of 20 working days. It is the­re­fore not ne­cessary to ex­pli­citly de­ter­mine the ac­tual to­tal working days in a month.
• Since the monthly tax days al­ways amount to 30, a fac­tor of 1.5 (30 tax days for 20 to­tal working days) can be used in cal­cu­la­ting the tax days re­le­vant to wage tax.
• Ex­am­ple: If an em­ployee works for 6 days in Ger­many in a month and pro­vi­des his work on the re­mai­ning work­days in a DTA for­eign coun­try, 9 tax days should be con­side­red for de­ter­mi­ning the wage tax. If the em­ployee earns a gross wage of 1,500 Eu­ros for the working days in Ger­many, the daily wage tax ta­ble must be ap­plied to a daily wage of 166.66 Eu­ros (1,500 Eu­ros/9 days). It is not ne­cessary to de­ter­mine how many non-working days the month con­ta­ins and where the em­ployee spends these days.

The Ger­man Tax Aut­ho­ri­ties also state in the let­ter from 26 Fe­bru­ary 2024 that it is not ob­jec­tio­nable to con­ti­nue to ap­ply the gui­de­line re­gu­la­tion be­fore 2023 for the year 2023. Ac­cor­ding to re­ports, Ger­man fi­nan­cial of­fices are now being in­struc­ted to ap­ply the daily rate ta­ble only from 2024. Gi­ven the an­noun­ce­ment of the let­ter at a time when in Ger­many an­nual wage tax cer­ti­fi­ca­tes have usually al­re­ady been sub­mit­ted, there are con­side­ra­ble pro­ce­du­ral hurd­les to over­come if a wage tax re­fund is to be ob­tai­ned re­tro­spec­tively.

Performing a wage tax annual adjustment

Star­ting from the tax as­sess­ment pe­riod 2020, in Ger­many a wage tax an­nual ad­just­ment can or must also be car­ried out for em­ployees sub­ject to li­mited tax lia­bi­lity who are em­ployed con­ti­nuously by the same em­ployer th­roug­hout an ent­ire ca­len­dar year.

Howe­ver, the wage tax an­nual ad­just­ment is ex­clu­ded if, in ad­di­tion to the in­come ta­xable in Ger­many, em­ploy­ment earnings are also ear­ned that are ex­emp­ted in Ger­many ac­cor­ding to a DTA or the EU For­eign Ac­tivity De­cree.

The Ger­man Tax Aut­ho­ri­ties con­firm the state­ment of the Ger­man trade as­so­cia­ti­ons that the­re­fore, the wage tax an­nual ad­just­ment is to be car­ried out for li­mited tax lia­bi­lity em­ployees who are em­ployed th­roug­hout the year. The wage tax is then de­ter­mi­ned ba­sed on the an­nual wage, which re­gu­larly re­sults in a tax re­fund and ul­ti­mately ren­ders the ap­pli­ca­tion of the daily wage tax ta­ble in­ef­fec­tive. Un­der spe­ci­fic con­di­ti­ons the wage tax an­nual ad­just­ment can be ex­clu­ded. A cla­ri­fi­ca­tion by the Ger­man Tax Aut­ho­ri­ties in which ca­ses the ex­clu­sion cri­te­rion is ful­fil­led is still out­stan­ding.

Conclusion

The Ger­man Tax Aut­ho­ri­ties wil­ling­ness to fur­ther cla­rify the ap­pli­ca­tion of the daily wage tax ta­ble for em­ployees who only earn par­ti­ally ta­xable wa­ges in Ger­many in a month is ge­ne­rally to be wel­comed. Un­for­tuna­tely, not all ap­pli­ca­tion ques­ti­ons have yet been cla­ri­fied.

It is be­com­ing ap­pa­rent that the Ger­man Tax Aut­ho­ri­ties, at least from 2024, in­sist on a uni­form im­ple­men­ta­tion of the daily rate ta­ble for em­ployees sub­ject to un­li­mited and li­mited tax lia­bi­lity in Ger­many. Fur­ther­more, the Ger­man Tax Aut­ho­ri­ties in­di­cate that a new ver­sion of the let­ter da­ted 14 March 2017 on the de­ter­mi­na­tion of tax-free and ta­xable wa­ges ac­cor­ding to dou­ble ta­xa­tion agree­ments and the EU For­eign Ac­tivity De­cree in the wage tax wi­th­hol­ding pro­ce­dure is plan­ned. Ad­di­tio­nally, the pro­vi­sion for the wage tax an­nual ad­just­ment ac­cor­ding to the Ger­man In­come Tax Act is to be re­pea­led for em­ployees sub­ject to li­mited tax lia­bi­lity with the An­nual Tax Act 2024. A cor­re­spon­ding draft pro­po­sal da­ted 5 June 2023 is al­re­ady avail­able.

Em­ploy­ers, who have al­re­ady ap­plied the daily rate ta­ble in 2023, should ex­amine whe­ther a pro­ce­du­ral change to the wage tax re­gis­tra­ti­ons is still pos­si­ble so that the monthly ta­ble can be ap­plied.