Frankfurt The coalition committee has decided to increase short-time work benefits to 70 and 77 percent of the net wage loss from the fourth month. However, calculations by Lorenz Jarass from the Rhein-Main University of Applied Sciences show that high-earning employees on short-time work can already come up with replacement rates for the net loss of earnings of 80 percent – if you include tax effects that occur in the annual tax return. On the other hand, such effects hardly occur with low earners. The technical essay is to appear in May in the magazine “Der Betriebsberater”.
So far, short-time workers without children have received 60 percent, and those with children 67 percent of the loss of earnings after taxes and social security contributions. In fact, according to Jarass calculations, the bottom line is a lot more.
The range for the cases examined by him ranges from 67 percent to 81 percent. If short-time work benefits were increased, the effective replacement rates would shift upward, if not necessarily proportionately.
Why are the actual rates higher than the official rates?
The partial compensation of the loss of net wages is only approximate, in a generalized procedure. Because the actual tax deduction with and without short-time work is only determined at the end of the year in the tax return.
Since the tax rate also rises with increasing income, the effect of short-time work on net wages also depends on the income of a jointly assessed partner.
In the case of short-time work that does not last all year, the corresponding loss of earnings lowers the tax rate for the rest of the year. Employees are then reimbursed for overpaid wage tax. Since this is a direct consequence of the measure, this reimbursement, calculated over the short-time working months, can be added to compensate for the loss of earnings.
On the other hand, short-time work benefits are subject to progression. It is not taxed, but it does make the tax rate used to tax the rest of your income a little higher.
How much of their net income workers can effectively lose in short-time work can therefore only be determined by means of rather complex calculations for specific case constellations.
How does the effective reimbursement rate depend?
- Children: Employees with children on the income tax card receive 67 percent of the short-time allowance, and only 60 percent without children.
- Duration of short-time work: If short-time work is only carried out for a month, the tax savings for the year are only distributed over this one month. The rate of compensation for loss of earnings is correspondingly high. The replacement rate becomes lower with longer short-time work.
- Income: Those who receive a higher salary benefit more from the lowering of the tax rate in the annual tax equalization because the reverse progression effect in the form of a lowering of the tax rate has a stronger impact.
- Spouse splitting: Anyone who uses spouse splitting as a married single earner has a relatively low tax rate anyway and receives relatively little reimbursement due to the loss of earnings due to short-time work in annual tax compensation. If you have a spouse who earns a lot, you have a high tax rate and therefore receive a relatively high tax refund due to loss of earnings due to short-time work.
For his essay, Jarass calculated the effective net wage replacement rates for short-time work of 100 percent, if not at all. And for a period of one, three and six months, for single people with and without a child, and for married people with a child who are either single earners or have an equally well earning partner who is well disposed to work with them.
As a gross monthly income, he calculated the variants 2000 euros, 4000 euros and 6000 euros. With 6000 euros you are close to the contribution ceiling for unemployment insurance. Short-time working benefits are only paid on wages and salaries up to this limit.
Highest rates for high earners
According to his calculations, the replacement rates for the highest income group are highest. Married children with a gross monthly income of 6,000 euros and a partner who earns the same amount get a replacement rate of 81 percent for one month of short-time work. At six months it is still 79 percent.
The replacement rates for low earners are lowest. Lone earners with children with a gross monthly income of 2,000 euros are only compensated for the standard rate of 67 percent of the loss of net wages regardless of the duration of short-time work, since they do not have any favorable tax effects.
Low-income single people without a child receive a similar high compensation rate, even though their standard rate is only 60 percent.
The rates are lower for half short-time work
If the work volume is not reduced to zero, but to 50 percent, for example, the increase in the effective replacement rate due to tax effects is less pronounced. According to preliminary calculations by Jarass, which will be included in another article, the annual net income of short-time workers who are 50 percent short-time working for six months is 300 to 900 euros lower than those who are zero for three months on short-time working. Again, the higher the replacement income, the higher the income.
In his essay in the business consultant, Jarass points out that employees will generally not see whether and how much their short-time work loss in the annual tax return will be less than it initially appears.
Because for most, advertising costs and other effects lead to tax refunds or additional payments, which are offset against the reimbursements caused by the progression effects of short-time work.
More: 77 percent of metalworkers are on short-time work – IAB expects more unemployment. Read more here.