Inflation relief package(s) / new tax-exempt inflation bonus
The Austrian government has announced relief packages to mitigate the impacts on the population due to the huge wave of inflation. The first inflation relief package (part 1) was passed by the Austrian parliament at the end of June and was published in the Austrian Federal Law Gazette (BGBl.) on 30 June 2022.
The package included small adjustments to the deductible amount for pensioners, the surplus amount for children, and the family bonus plus (increased as of 1 January 2022, instead of 1 July 2022), as well as the introduction of a one-off inflation deduction (for incomes of up to EUR 24,500) for the tax assessment for 2022 and an inflation credit in the context of social security. In particular, the package introduced a new, temporary tax-exempt inflation bonus.
Tax-exempt inflation bonus
For the calendar years 2022 and 2023, it will be possible for employers to make tax-exempt allowance and bonus payments (inflation bonus) of up to EUR 3,000. The exemption not only applies to income taxes, but to all wage taxes, including non-wage labour costs. Consequently, such payments will not incur contributions for wage tax, social security, the employer contribution to the family allowance fund (DB), the surcharge to the employer contribution (DZ), municipal tax, and payments to the employee severance fund.
However, when planning the bonus, the following three limitations should be considered:
- The tax-exempt amount will initially be a maximum of only EUR 2,000 per year. The prerequisite for using the remaining amount of EUR 1,000 is that the relevant payment is made under one of the forms of wage regulation set out in Section 68 para 5 numbers 1 to 7 Austrian Income Tax Act (EStG). These include, in particular, collective bargaining agreements, works agreements made on the basis of collective bargaining agreements, as well as payments made to all employees or specific groups of employees (group hallmarks for tax purposes).
- A mandatory prerequisite is that the payments must constitute supplementary payments that were not ordinarily made in the past. Therefore, it is not permissible to convert salary components. It would be detrimental for tax purposes if, for example, the bonus was paid instead of a portion of base pay or instead of an annual bonus that was previously granted on a regular basis.
- The legal interrelationship with the tax-exempt profit participation also needs to be considered.
- The tax-exempt maximum amount (EUR 3,000 annually) applies to the sum of any inflation bonuses and employee profit participations.
- In addition, a special scheme will apply for 2022: employers who have granted a tax-exempt profit participation will be able to treat this as an inflation bonus retrospectively. This enables a ‘rebate’ of non-wage labour costs and social security contributions for employees.
- For tax purposes, the inflation bonus is in many ways cheaper than the employee profit participation. Unlike the employee profit participation, the inflation bonus is also exempt from non-wage labour costs, making it more attractive for employers. For the years 2022 and 2023, therefore, it is worth considering whether granting an inflation bonus might be preferable. For profit participations granted in the year 2022, it will be possible to adjust this retrospectively, meaning that employers will be able to save any relevant non-wage labour costs.
In practice, various points need to be considered when planning the inflation bonus. For example, a written agreement regarding the grant of the bonus is not required from a legal perspective. However, it is advisable to keep written documentation of the basis for the payment – for example, in the form of a letter from the employer (particularly as a form of evidence in the event of wage tax audits). The employee’s signature is not required.
In addition, it should be clearly stated in the payslip that the bonus is a payment made to provide relief from the effects of inflation.
Abolition of ‘bracket creep’ (inflation relief package, part 2)
In addition, part°2 of the inflation relief package, which is currently subject to review, envisages the abolition (or mitigation) of ‘bracket creep’ (kalte Progression).
Inflation relief package, part 3
Part 3 of the inflation relief package is also currently subject to review. This includes, in particular, changes to sick pay, rehabilitation pay, unemployment benefits, childcare payments, student grants, and other family support payments.
Author: Katarina Zivojinovic