Withholding tax for employees (PAYE tax - Lohnsteuer)
In the case of employees, the income tax to be paid from the wages is levied by deducting it from the working wage (so called PAYE tax). The taxation procedure is generally completed with the tax deduction, except when the employee may come under consideration for assessment for income tax upon expiry of the calendar year.
The domestic employer must retain the PAYE tax with every payment of the wage and pay this to the tax office. The basis for the PAYE tax deduction is the PAYE tax card (so called Lohnsteuerkarte). It contains personal characteristics for taxation of the employee which are already taken into consideration with the tax deduction. The PAYE tax card is issued by the municipality for all members of its district before the beginning of each calendar year.
Upon application by the employee, an assessment is carried out upon expiry of the calendar year, where e.g. tax deductions may be claimed, and any PAYE tax levied in excess will be refunded.
In certain cases an assessment for income tax is prescribed mandatorily for employees to determine the annual tax debt. These are, in particular, cases where the employee has had other income or a deductible amount (allowance) has been entered on the PAYE tax card.
Debtor of the PAYE tax is the employee. The employer is, however, responsible for the correct retention and payment of the PAYE tax. If the tax office discovers during an audit that the retained PAYE tax was too low, it may take the employer or directly the employee to task for the deficits.
The PAYE tax deduction is made from the working wage (income from employment). Working wage is all takings which flow towards the employee from the employment relations or an earlier employment relation. The takings include not only cash remunerations, but also payments in kind (e.g. food and accommodation) and other non-cash benefits (e.g. private use of a company car).
"Mini-jobs"
Mini-jobs are employment in return for a low wage, where the monthly wage does not exceed a maximum limit of EUR 400. For the employer this arrangement entails less bureaucracy, because the flat-rate levies on mini-jobs are paid to a central agency (the so-called "Minijob-Zentrale").
For a mini-job, the employer pays flat-rate contributions currently amounting to approx. 30% of the wage. This always includes a flat-rate tax of 2%. The employee does not pay any contribution or tax. Further details can be obtained from the information provided at Minijobzentrale.
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