As the year draws to a close, the German “Tax-Free Inflation Adjustment Premium” offers a unique opportunity for employers to support their workforce financially. Under this initiative introduced in 2022, employers can provide a one-time payment or installments totaling up to €3,000 per employee, completely tax-free and exempt from social security contributions. December 2024 is the last month for companies to pay out the inflation adjustment bonus if they have previously waived payment of the bonus in full or in part. This policy intended tomitigate inflation-related hardships, ensures that employees receive the full amount without deductions, while employers avoid additional wage costs.
Key Points to note:
- Voluntary Payment: The premium must be an additional benefit, not replacing any contractual wages or bonuses, and should be specifically designated to offset inflation-related burdens.
- Flexible Implementation: Employers can distribute the premium in one payment or several smaller amounts, and it can even include benefits in kind, such as gift vouchers or fuel cards.
- Eligibility: All employees, including part-time workers, mini-jobbers, and those with multiple jobs, are eligible to receive the full benefit.
- Documentation: Payments must be properly recorded in payroll systems to ensure compliance during audits.
Why This Matters:
For employees, the premium represents much-needed financial relief amidst rising living costs.
For employers, it serves as a tool to boost morale and retention without incurring additional tax burdens.
Quadlux can assist clients by:
- Explaining the criteria, eligibility, and benefits of the program.
- Helping design compliant payroll structures and handling necessary documentation.
- Supporting strategic planning to maximize the benefit’s impact for both employers and employees.
Contact us at support@quadlux.net to guide you through this payment.
For additional literature on this please visit : Federal Ministry of Finance – FAQ on the inflation compensation bonus according to § 3 number 11c of the Income Tax Act.
