Kurzarbeit system in Germany with tax implications

Under the situations of an acute economic crisis and a corresponding decline in revenue due to solid external reasons (not due to internal mismanagement), companies can file for Kurzarbeit (short-time work) in Germany. In addition, the company’s works council (Betreibsrat) and every affected employee must also agree for the same. Such short-time work may affect all or only some of the employees of a company. The persons affected by short-time working may work less or not at all.

Kurzarbeit system makes sure that employees don’t loss their Job in the long term. The goal of the Kurzarbeit allowance is to relieve employers in an acute crisis and thus secure jobs. Accordingly, the Bundesagentur für Arbeit (Federal Employment Agency) will decide upon it. Further it will evaluate even the provision for employees entering into a Kurzarebit system against any other potential new opportunities in the labor market.

How does it work?

Your company claims for Kurzarbeit system under solid economic reasons and it reduces your weekly working hours.

Employer contributions: Salary only for reduced working hours.
Federal Employment Agency contributions: 60 % of the lost salary.
(67 % for employees with children)
Know More: Calculate your Kurzarbeitgeld here

Effect on Social contributions

Membership of the statutory social security system is maintained even during Kurzarbeit. However, the level of contributions for pension (Renten), health (Kranken), unemployment (Arbeitslosen)and nursing care insurance (Pflegeversicherung) is based on the Brutto income for the reduced working hours.

Further, lost salary is also subject to the obligation to contribute up to 80 percent. The contributions for this must be paid by the employer alone.

Effect on Parentalgeld

Kurzarbeit can considerably reduce parental allowance entitlement, since the amount of parental allowance is determined solely by the last earned salary. When determining the parental allowance, Kurzarbeit allowance is not taken into account. So employees affected by kurzarbeit work must expect considerable financial disadvantages here.

Tax Implications

Kurzarbeitgeld is tax free. But it will increase your tax rate as it is added with your yearly Income while determining the tax rate.

i.e Your Annual tax rate is calculated based on new Brutto 
income (under reduced working hours) plus Kurzarbeitgeld. 
Now, this %tax rate is applied upon new Brutto income. 

Further, If you have received Kurzarbeitgeld of more than 410 euros per year, you are obliged to file a tax return.

 Know More: When am I obliged to file a Tax Return in Germany?

Eazyleben Tips

  1. As an employee you do nothing- The employer takes care of the communication with the employment agency. Payments are made via the monthly payroll.
  2. You can claim Kurzarbeitgeld only for a Maximum period of 12 months. However, if the situation on the labor market is tense, the maximum duration can be extended to up to 24 months.
  3. If an employee takes up further employment after the introduction of short-time work or increases the income earned from previous employment or self-employment, the additional amount received is added to the employee’s existing net actual remuneration and thus reduces the amount eligible for short-time work compensation.
  4. Kurzarbeitgeld is tax free. But it will increase your tax rate as it is added with your yearly Income.
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