Legal Change: Tax Relief Law 1999/2000/2002

Scope of Functions

The tax relief law came into force on the 1st April 1999.
The new regulations in the area of payroll include the following points:

Taxation of Severance Pay and Payments over Several Years:

Reduction of exemptions for severance pay (§3 No. 9 EStG) and restriction of transition pay tax exemption (§3 No. 10 EStG)
The previous exemptions for severance pay are reduced by a third to 16,000 DM / 20,000 DM / 24,000 DM. Tax exemption for transition pay is restricted to a maximum of 24,000 DM.
These changes apply for payments included from the 1st of April 1999.

The old regulations still apply for payments included before the 1st of April 1999, that refer to contracts completed before the 1st of January 1999.

Cession of Exemptions for Anniversary Payments Change in the taxation of payments over several years (§39b (3) clause EStG) and cession of half tax rate for severance pay (clause 10).
Severance pay is taxed as payments over several years. It is taxed by dividing by five instead of by three.
These changes apply retrospectively to the 1st January 1999. In accordance with §41c EStG, the employer is entitled to correct tax calculation for periods already calculated in 1999. This applies by means of a new regulation even in the case of a retrospective change in law. If the employer does not make use of this authorization, he has to present the appropriate case immediately to the company tax office.

Consolidation into a Lump Sum:

The reduction of the assessment basis previously carried out where the flat-rate tax is passed onto the employee is no longer allowed.
This regulation replaces the planned cancellation of the option to pass on the flat-rate tax to the employee in the draft of the Tax Relief Regulation.
The changes apply for payments that are included from the 1st April 1999. The old regulations still apply for payments included before the 1st April 1999.

Master data maintenance:

If you have already wage types for severance pay in the infotypes Recurring Payments/Deductions (0014) or Additional Payments infotype (0015) that are valid after the 1st April 1999, you must check these infotype records and modify them, if necessary.

Effects on Customizing

If the employer has not previously withheld employment tax according to the new regulations (from the 1st April 1999), he is authorized to change the employment tax deduction retroactively, in other words, perform retroactive accounting.
If the employer can not withhold too little employment tax retrospectively or does not make use of his correction authorization, he must immediately inform the company tax office responsible. Depending on the procedure, various changes have to be made in the system.

Taxation of Severance Pay and Redundancy Pay

Here, you must change the breakdown into tax-liable and tax-exempt shares for your user-defined wage types (model wage type M310). The tax-liable share is no longer included in the secondary wage type /509 (1/2 tax/ SI ext payment), but in the secondary wage type /506 (3yr tax/ SI ext Payment).
To do so, you maintain the view Wage Types to be Broken Down (V_T512C).

If you decide to change the employment tax deduction retroactively (in other words, perform retroactive accounting for the months January to March), you must make the changes from the 1st January 1999.
To do so, you enter wage type /506 with the validity start 1st January 1999 in the Output Wage Types group in the Tax-liable Share field.

If you decide not to perform retroactive accounting but to inform the Tax Office of the employees affected instead, maintain the changed entries with the validity start 1st April 1999.

Entering the exemption using a fixed value

In the view Wage Types to be Broken Down (V_T512C), the value of a wage type can be predefined using a fixed value. In this case, the Fixed Value field is maintained accordingly.
If exemptions are specified using fixed values in your company, you must modify the fixed values in accordance with the lower exemptions.
The validity start of the changed exemptions is the 1st April 1999. The old entry should be delimited to the 31st March 1999, the new entry starts on the 1st April 1999.

Entering the Exemption using a Constant

In the view Wage Types to be Broken Down (V_T512C), the value of a wage type can be specified using a constant. In this case, the Constant field is maintained accordingly. The constant is stored in the view Payroll Constants (V_T511K).
If certain exemptions are specified using a constant in your enterprise, you must modify the constant according to the reduced amounts.
The validity start of the changed exemptions is the 1st April 1999. The old entry should be delimited to the 31st of March 1999, the new entry starts on the 1st of April 1999.

For further information, see the Implementation Guide (IMG) Payroll Germany -> Tax -> Processing -> Allocate wage types into tax-exempt/tax-liable shares

Taxation of Anniversary Payments

You must set the exemption amounts to zero for your user-defined wage types (model wage type M210 - M260).
To do so, maintain the view Wage Types to be Broken Down (V_T512C).

If you decide to change the employment tax deduction retroactively, (in other words, perform retroactive accounting for the months January to March), you must delimit the wage types affected to the 31st December 1999 and set the exemption to zero for the 1st January 1999.

If you decide not to perform retroactive accounting, but to inform the Tax Office of the employees affected instead, make the changes described with the validity start of the 1st of April 1999.

If exemptions are specified using fixed values or constants in your enterprise, you must also modify these values accordingly.

Selecting the Employees Affected

The Tax Office must either be informed of the employees affected or retroactive accounting must be performed for these employees.
You can select the employees easily with the report RPCLGA00 (Wage type statement), by searching for employees with the wage types /113 (Gross Tax Amount for Several Years) and /114 (1/2 Gross Tax Amount).