How are one-time payments such as vacation pay or Christmas bonuses calculated?
June 3, 2024 | 45,00 EUR | answered by Günther Tiefental
Dear tax advisor,
My name is Valentina Kieselbach and I have been working in a company for several years that pays me both holiday pay and Christmas bonus annually. So far, I have never delved deeply into the calculation of these one-time payments, as my employer has always taken care of it for me. However, I have recently heard from some colleagues that there are some special considerations to keep in mind when calculating holiday pay and Christmas bonus, and some of them are relevant for tax purposes.
I am now concerned that I may have made mistakes in the calculation or that my employer has not correctly handled the one-time payments. I want to ensure that I do not have to expect any tax payments or other unpleasant surprises. Therefore, I would like to learn more about the exact calculation of holiday pay and Christmas bonus and understand which tax aspects are involved.
Can you explain to me how one-time payments such as holiday pay and Christmas bonus should be correctly calculated? Are there specific tax-free amounts or tax rates that need to be considered? What are the implications of these one-time payments on my income tax or social security contributions? And are there possibly ways to minimize the tax burden or optimize the calculation?
I would be very grateful if you could help me with these questions, as I am really unsure and would like to ensure that my calculations are correct and legally sound.
Thank you in advance for your support.
Best regards,
Valentina Kieselbach
Dear Ms. Kieselbach,
Thank you for your inquiry regarding the calculation of holiday pay and Christmas bonus. It is understandable that you are concerned about possible tax implications and want to ensure that your one-time payments are calculated correctly. I will now explain in detail how these one-time payments should be treated and what tax aspects are involved.
In principle, holiday pay and Christmas bonus are taxable and subject to social security contributions, usually paid together with regular salary. This means that these one-time payments are taken into account when calculating income tax and social security contributions. The exact amount of deductions depends on your individual tax rate and the respective tax-free allowances.
Special rules apply to one-time payments such as holiday pay and Christmas bonus to prevent you from moving into a higher tax bracket due to the higher income. There is the so-called "Fünftelungsregelung" which aims to reduce the tax burden on one-time payments. The taxable income from the one-time payment is divided by five, and only one-fifth of it, i.e. 20%, is used to calculate income tax. This avoids a higher progression and reduces the overall tax burden.
In addition, there are certain tax-free allowances that can be considered for one-time payments to minimize the tax burden, such as the annual basic allowance, flat rate deduction for work-related expenses, or allowances for special expenses. It is advisable to consult your tax advisor or employer to find out about potential tax-free allowances to optimize your tax burden.
Regarding social security contributions, it is important to note that holiday pay and Christmas bonus are included in the assessment basis for health, nursing, pension, and unemployment insurance contributions. This may temporarily increase your social security contributions due to the higher income. However, it is important to know that these contributions are calculated in accordance with the applicable legal regulations and cannot be optimized.
Finally, I want to emphasize that the correct calculation of holiday pay and Christmas bonus is the responsibility of your employer. If you are unsure or have questions about the calculation, I recommend contacting your employer or a tax advisor directly. I am also available to answer any further questions and assist you with all tax matters related to your one-time payments.
I hope that this information has been helpful and I am available for any further questions.
Best regards,
Günther Tiefental
