The coronavirus bonus was anchored in the First Coronavirus Tax Assistance Act under § 3 No. 11a of the German Income Tax Act (Einkommensteuergesetz). Under this provision, employers may pay their employees a coronavirus special payment of up to a maximum of €1,500.00 free of tax and social security contributions. In practice, many employers wish to make use of this option but are concerned that the tax authorities may subsequently refuse to recognise these payments as exempt from tax and social security. Given the many uncertainties, we would like to provide an overview of the conditions under which such payments qualify as tax- and social security-free. Pursuant to § 3 No. 11a Einkommensteuergesetz, the special payments are only exempt from tax and social security contributions if they are paid between 1 March and 31 December 2020. A further condition is that the coronavirus bonus must be granted in addition to the wages already owed and may therefore not result from a salary conversion. If, as an employer, you pay voluntary benefits to your employees to which they have no entitlement, you may discontinue those voluntary payments and instead pay the tax-free coronavirus bonus this year. However, if there is already an entitlement to a special benefit granted before 1 March 2020 — for example because it was fixed in the employment contract, even if declared as voluntary — you cannot convert that payment into a coronavirus bonus, as this would otherwise constitute a harmful salary conversion and the bonus would not be granted in addition to the wages already owed. Furthermore, payments are only tax-free up to an amount of €1,500.00. Amounts exceeding this threshold are taxable as wages. In this context, it should be noted that the employer may choose whether to transfer money to the employee or to grant benefits in kind. Many employers also ask whether they can pay this coronavirus bonus to their mini-jobbers without the latter losing their social security status as marginally employed persons. Pursuant to § 1 (1) No. 1 of the Social Security Remuneration Ordinance (Sozialversicherungsentgeltverordnung), the coronavirus bonus does not count as remuneration for social security purposes and may therefore also be paid to a mini-jobber. Caution is advised when considering whether a controlling shareholder-managing director of a GmbH may pay himself the coronavirus bonus tax-free. The tax office examines in this context whether the bonus is at arm's length or is motivated by the shareholder relationship. Should the tax office conclude that the bonus is paid for shareholder-related reasons, a hidden profit distribution exists. In such a case, the taxable income of the GmbH increases by the amount of the coronavirus bonus paid out, so that the GmbH shareholder must tax it as investment income. Therefore, as a matter of legal caution, we advise GmbH shareholders to pay themselves a coronavirus bonus only if a managing director who does not hold a stake in the GmbH receives a coronavirus bonus of the same amount.
Finally, the tax exemption for the coronavirus bonus will only be recognised if the payment is granted to mitigate the additional burden caused by the coronavirus crisis.
To ensure that you as an employer are on the safe side from both a tax and an employment law perspective, a written agreement on the coronavirus special payment that meets all the requirements is indispensable. Please do not hesitate to contact us in this regard. We will be pleased to assist you in drafting the agreement.
Frequently asked questions
Frequently asked questions
Up to what amount is the Corona special payment to employees exempt from tax and social security contributions?
Under § 3 No. 11a EStG, employers may grant their employees a Corona special payment of up to €1,500 free of tax and social security contributions. Any amount exceeding this threshold must be taxed as regular wages. The payment can be provided either as a cash benefit or as a benefit in kind.
What requirements must be met for the Corona bonus to be tax-free?
The payment must be made between 01/03/2020 and 31/12/2020 and must be granted in addition to wages already owed, meaning it cannot result from a salary conversion. It must also be paid to mitigate the additional burdens caused by the Corona crisis. A written agreement is strongly recommended.
Can a previously promised voluntary special payment be converted into a Corona bonus?
No. If an entitlement to a special payment already existed before 1 March 2020 — for example, through a contractual provision, even if labeled as voluntary — it cannot be converted into a Corona bonus. Such a conversion would constitute a harmful salary conversion. However, genuinely voluntary payments without any entitlement may be replaced by the Corona bonus.
Can mini-jobbers receive the tax-free Corona bonus without losing their mini-job status?
Yes. Under Section 1 (1) No. 1 of the Sozialversicherungsentgeltverordnung (Social Security Contribution Ordinance), the Corona bonus does not count as remuneration for social security purposes. It can therefore also be paid to marginally employed staff without affecting the EUR 450 threshold or jeopardising their mini-job status.
What are the risks of paying a Corona bonus to a controlling shareholder-managing director?
The tax office examines whether the payment is at arm's length or motivated by the shareholder relationship. If a shareholder-related motivation is assumed, a hidden profit distribution arises, which increases the GmbH's taxable income and must be taxed as investment income at the shareholder level. Payment is only advisable if a non-shareholding managing director would receive a comparable bonus.