Kurzarbeit guide 2021: Additional benefits & How to file taxes for 2020

Millions of people were put on short-time work (Kurzarbeit) in 2020 – meaning that they are now obliged to submit a tax return in Germany. Unsure about how this works? Taxfix, the tax expert-led app, has put together this guide.

Proven successful in saving over 7 million jobs, the German government is using its tried and tested Kurzarbeit scheme to support the labour market through the coronavirus crisis. If you have survived 2020 as an employee in Germany, you’re probably no stranger to the term “Kurzarbeit” (short-term work). It’s been a life-saver.

But 2021 is a new year, which means lots of new questions, namely:

• Do Kurzarbeiters have to file taxes for 2020?
• Can a Kurzarbeiter have a second job?
• Can a Kurzarbeiter receive financial aid for training courses?

Here’s your guide to the essential updates Kurzarbeiters need to know about in 2021.

It’s 2021: Am I still eligible for Kurzabeitergeld (KuG)?

If you’re still employed, yes. Your employer is responsible for facilitating the KuG process on your behalf.

Whether you are a trainee, working full-time or a temporary worker, your company has to declare to the Agentur für Arbeit that at least 10 percent of its employees are at risk of losing their jobs because of the pandemic.

• The deadline for registration is March 31, 2021, so that the employees may receive KuG until at least December 31, 2021.
• If your company registered for Kurzarbeit between December 31, 2020, and December 31, 2021, you are entitled to an extra 24 months of KuG.

How does KuG affect my social security contributions?

If you are in receipt of KuG, you are at an advantage in 2021 when it comes to social security contributions. Here’s what you need to remember:

• For the hours you receive KuG (i.e., the hours when you cannot work), your employer is responsible for paying your social security contributions.
• Between March 20, 2020, and June 30, 2021, your employer will pay your social security contributions and, in turn, will be reimbursed in full by the Federal Employment Agency.
• Between July 1, 2021 and December 31, 2021, the Federal Employment Agency will only reimburse your employer for 50 percent of the social security contributions paid on your behalf – and only if your employer registered for the Kurzarbeit scheme before June 30, 2021.

I have been receiving KuG since 2020. I just landed a second job. Am I still entitled to Kurzarbeitergeld?

It’s a good idea to notify your employer of your earnings, so that they can assess your tax status accurately. Your extra income will most likely fall under one of these two brackets:

Your income is tax-free

Your income will remain tax-free in the following circumstances:

• Your second job is a so-called Minijob (geringfügige Beschäftigung), paying no more than 450 euros per month
• You received a COVID19-related bonus between March 1, 2020, and December 31, 2020, that did not exceed 1.500 euros

Note that one-off bonuses like Christmas bonuses or holiday pay are taxed the same as before.

Your income is taxable

Your extra income will be subject to taxation if:

• You start a second job while receiving KuG. This counts as additional income and can change your tax status. The total remuneration you receive will be offset against your KuG payments.

If KuG is tax-free, do I still have to file taxes for 2020?

That’s correct. KuG is tax-free. However, filing taxes for 2020 is mandatory, especially if you earned at least 410 euros in Kurzarbeitgeld.

Depending on your circumstances, you may find that receiving KuG changes your tax status, due to the concept of Progressionsvorbehalt.

How Progressionsvorbehalt works

The KuG is a wage replacement benefit and is thus subject to Progressionsvorbehalt. Before, when you were just receiving a regular wage, your employer would automatically deduct income tax from your gross salary and transfer it directly to the tax office. You didn’t need to do anything. End of story. Then you starting receiving KuG, and things changed a bit.

This is where it starts to get a bit complicated, so let’s use a concrete example. Say you receive 50 percent of your regular salary from your employer, and the rest as KuG.

Let's assume that your income tax rate is 10 percent. So, you have to pay the usual 10 percent income tax on your 50 percent salary. As usual, your employer pays this to the tax office in advance.

Now for the 50 percent that’s Kurzarbeitgeld. This counts as additional tax-free income. Here’s what you should remember: The tax office can now raise the income tax on your regular income to 12 percent simply because you have earned additional income. As a result, you will have slightly higher taxes on your earned income (your 50 percent salary), but not as much as if you were a full-time employee. So, you may end up owing the tax office slightly more for 2020.

But, there’s some good news, too! If you were a Kurzarbeiter for just a short period in 2020, you are most likely eligible for a tax refund! You just need to make the right calculations. Easy.

As a Kurzarbeiter, what are my options for filing taxes?

If you self-declare your taxes for 2020, the deadline is July 31, 2021. If you employ a tax advisor and give them power of attorney, the deadline is automatically extended until February 28, 2022.  

Here are the ways you can file taxes in Germany:

• Direct tax return: You can pick up the forms you need for this at the tax office, provided they are still open to visitors. Alternatively, you can print them out from the website of the Federal Ministry of Finance. Once completed, you can send them in the post, or drop them off in person.
• Paper-free tax returns: With ELSTER, you can fill out the tax return forms online and submit them to your tax office, without paperwork.
• Tax returns via an app: Apps provide a simplified way to file taxes, and there are plenty out there that can really simplify the process, saving you hours of stress.

Now that I’m working fewer hours, I have time for further training courses. As a Kurzarbeiter, can I receive funding?

If you received KuG in 2021, you may be entitled to the course funding scheme that lasts until July 31, 2023. Aside from covering course-related costs, the funding will also subsidise the cost of childcare, food, travel and accommodation for those who want to study for extra qualifications or training courses. To see if you qualify, refer to section H of this document.

Taxfix leads the way in offering free-of-charge tax filing specifically to support Kurzarbeiter in 2020. Helping to make tax returns simple and speedy, it’s a game-changer.