How often you file, and who actually owes the wage tax

A joinery hires its first temporary help in May and remits 96 € of wage tax. The following year the total for the whole year is 1,320 €. The owner keeps filing monthly, twelve times, because that is how he began. Four filings would have done, and the figure that decides it sits in a single sentence of the statute.

The employer pays in somebody else's money

Wage tax is not a tax on the business. It is the employee's income tax, collected by deduction at source from wages. The employer withholds it and passes it on; in economic terms, money that never belonged to him flows through his account.

That division of roles explains how strict the rules are. Anyone who withholds and fails to remit is not holding back his own money but using somebody else's. The deadlines are correspondingly tight and the employer's liability correspondingly direct.

Section 41a of the Income Tax Act bundles both duties into a single subsection and a single moment. By the tenth day after the end of each filing period, a return must be submitted and the tax withheld must be remitted. Two acts, one cut-off date.

The addressee is the Betriebsstättenfinanzamt, the tax office in whose district the place of business lies. Not the owner's home tax office and not the employee's. With several places of business each location decides, which is routinely overlooked in distributed teams.

Transmission uses the officially prescribed data set sent electronically. On application the tax office may waive this to avoid undue hardship; an official paper form is then submitted, signed by the employer or by a person authorised to represent him.

The two numbered points of subsection 1 are deliberately kept apart. Number 1 is the return, number 2 the remittance of the wage tax withheld and assumed in total. Doing only one of them satisfies half the provision and incurs the whole consequence.

Remittance goes to the same Betriebsstättenfinanzamt that receives the return. A state finance authority may, however, direct under subsection 3 that filing and payment go to another public fund; that fund then holds the position of a state finance authority.

For bookkeeping this has a small but tiresome consequence. The bank details follow neither from the legal form nor from the company's seat but from the relevant state's decision. They are worth checking once and never worth guessing afterwards.

Withheld and assumed: two totals, one form

The return asks for the totals of wage tax to be withheld and of wage tax assumed. Two words denoting two different things, and the distinction becomes practical the moment a business accounts for a temporary worker on a flat-rate basis.

Withheld is the employee's tax, deducted from gross pay. Assumed is the tax the employer bears himself without charging it to the employee. Flat-rate wage tax is the principal case in that second category.

Both totals travel on the same return but stay separately stated on it. Mixing them loses the trail between what was passed on and what was borne, a distinction needed again at the latest when profit is computed.

The totals must also be stated separately by the calendar years in which the wages are received or deemed received. That concerns back payments across the turn of the year and is why a January return can carry two year columns.

For corrections, section 41c draws a sharp line, and it does not fall at the year end. After the end of the calendar year, or after the employment ends, the wage tax deduction may be changed only up to the transmission or issue of the wage tax certificate.

The certificate is therefore the real full stop. Before it, an under-deduction can be made good with the next payment of wages; after it, that route is closed, and it is closed even where the employment continues unchanged.

What remains is a notification. The employer must notify the Betriebsstättenfinanzamt without undue delay and electronically in the cases where he does not or can no longer make good the deduction. Without undue delay means without culpable hesitation, not by the next return.

The tax office then recovers the under-collected wage tax from the employee, provided the amount exceeds 10 euros. And section 42d expressly remains untouched: the notification moves who is asked to pay, it does not switch off the liability provision.

A refund of wage tax over-withheld is permitted after the end of the calendar year only through the annual wage tax adjustment. During the year, by contrast, the employer simply takes the refund from the total he has withheld for all his employees.

Where that total is insufficient, the shortfall is reimbursed to the employer by the Betriebsstättenfinanzamt on application. So the business need not pre-finance a refund out of its own funds, which does happen with small workforces and one large individual case.

Three periods, two amounts

Subsection 2 does not set out a rule with exceptions but a ladder with three rungs. In principle the calendar month is the filing period. Below it sit two steps, both measured by the wage tax remitted for the preceding calendar year.

The calendar quarter applies where that tax exceeded 1,080 euros but did not exceed 5,000 euros. The calendar year applies where it did not exceed 1,080 euros. Both figures are ceilings of their respective step, not entry thresholds.

Unlike with VAT, here the month sits at the top rather than the quarter. So anyone who checks nothing ends up in the most laborious variant. That is the practical effect of the words in principle: they describe the default one works down from.

The reference figure is the wage tax remitted, that is the total across all employees of the place of business. Not the payroll total and not the headcount. A business with ten mini-jobs may therefore file annually while one with a single well-paid employee files monthly.

The solidarity surcharge and church tax travel on the same return but do not count towards assigning the period. What matters is the wage tax itself. Adding the three together may push a business up a step and make it file more often than necessary.

The liability that follows from the division of roles

Section 42d draws the consequence of what the first section described. The employer is liable for the wage tax he has to withhold and remit. Not for fault but for an amount: the liability attaches to the duty, not to a culpable breach of it.

So far as that liability reaches, employer and employee are joint debtors. The Betriebsstättenfinanzamt may assert the debt against either of them in the proper exercise of its discretion, and it decides which one it turns to.

In practice that choice almost always falls on the employer. He is one address instead of many, he holds the records, and the statute expressly allows him to be pursued even where the employee is assessed to income tax.

The employee can be drawn on within the joint debt only in particular cases. The first is that the employer failed to withhold the wage tax properly from the wages. The list is exhaustive rather than illustrative.

Subsection 2 also names situations in which the employer is precisely not liable, for instance certain notified cases. The word notified is the key: someone who spots an error and reports it leaves the liability, someone who spots it and says nothing stays inside it.

For daily work that yields a plain rule. A wrong return is repairable as long as it is reported. The expensive case is not the error but the uncorrected error that a wage tax audit finds years later.

Where the business has not existed for a full year

For young businesses the previous year's figure would mislead, because it covers a shorter span. Sentences 3 and 4 of the subsection solve that by conversion, and they distinguish two situations that are easily confused.

Where the place of business existed for only part of the previous year, the wage tax to be remitted for that year is converted into an annual amount. What is then measured is the converted figure, not the amount actually remitted. The step can move upwards as a result.

Where the place of business did not yet exist in the previous year, a different rule applies. What matters then is the wage tax for the first full calendar month after opening, converted into an annual amount. A partial opening month does not count for this measurement.

• place of business existed part of the previous year: convert that period's actual wage tax to a year
• place of business did not yet exist: wage tax of the first FULL month after opening, times twelve
• in both cases the converted amount is measured against the 1,080 and 5,000 euro figures
• the classification then holds for the calendar year and is not readjusted during it

The second item on the list is where the arithmetic happens in practice. Opening on the 20th of a month, you measure not that stub month but the next complete one. That favours businesses that start slowly and disfavours those that open with a one-off payment.

When the filing duty ends

A business without employees need not file nil returns, but the duty does not end by itself. Sentence 4 of subsection 1 requires two things at once, and only both together release you from further returns.

First, the employer must no longer employ anyone for whom he has to withhold or assume wage tax. Second, he must notify the tax office of that. Without the notification the filing duty continues, even where in fact nobody is employed any more.

That is why businesses still receive reminders and estimates after the last dismissal. From the tax office's point of view nothing has changed, because nothing was communicated to it. An informal message ends a process that otherwise runs on for years.

Conversely the tax office can tighten the rhythm. Under subsection 3 sentence 2 it may order filing and remittance at a time other than the regular one where the remittance of wage tax does not appear secure. The period is therefore no acquired entitlement.

Between the two directions sits a useful reminder. A move from monthly to quarterly saves work, an order under subsection 3 takes time away. Neither changes the tax owed, only the frequency at which it becomes visible.

That completes the framework of the procedure. How much tax has to be withheld depends on what counts as taxable wages in the first place — and that is exactly where the latitude lies that the second module covers.