What changes in 2024 for wage tax and social security

Increase in the contribution assessment ceiling in 2024

What is the contribution assessment ceiling?

The contribution assessment ceiling (Beitragsbemessungsgrenze) is a term used in the context of social security systems. For employees it states the maximum level of income that is used to calculate certain contributions. In this case these are social security schemes such as pension insurance, unemployment insurance and health insurance.

No social security contributions have to be paid on the share of income that lies above the contribution assessment ceiling. In practice this means that on an income above this ceiling, fewer compulsory insurance contributions have to be made.

Why does the contribution assessment ceiling change?

The German federal government sets the contribution assessment ceiling afresh every year. The figure is based on the average gross income of insured people. It is recalculated each year to take account of the effects of inflation and changes in the economy. Adjusting the contribution assessment ceilings to economic developments makes sure that the social security system in Germany is largely adequately financed and that contributions are shared fairly among insured people.

What is the contribution assessment ceiling in 2024?

The contribution assessment ceiling is set separately for health and long-term care insurance and for pension and unemployment insurance. For the latter, a distinction is also made between western and eastern German federal states.

The annual income threshold

The annual income threshold (Jahresarbeitsentgeltgrenze) comes up alongside the contribution assessment ceiling. It is the maximum level of annual gross income up to which an employee in Germany remains subject to compulsory cover in the statutory health insurance scheme.

If annual gross income is above the annual income threshold, the employee is released from compulsory statutory health insurance and can opt for private health insurance instead.

This figure is also set afresh every year and is usually based on the average gross income of insured people (just as with the contribution assessment ceiling).

There is also talk of the “special annual income threshold”. This applies to employees who were already privately insured on 31 December 2023 because their gross income had already exceeded the annual income threshold in 2023. A lower annual income threshold applies to them.

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Basic tax-free allowance and tax rate

What is the basic tax-free allowance?

The basic tax-free allowance (Grundfreibetrag) is an amount up to which income stays tax-free. It is used to make sure that people on low incomes pay less tax or none at all, and it serves as a kind of subsistence minimum that always stays tax-free.

In Germany the basic tax-free allowance is set each year in the German Income Tax Act (Einkommensteuergesetz). Income up to the level of the basic tax-free allowance is not taxed. So if employees earn below this amount, no tax is levied on their income.

This amount is also raised regularly to offset the effect of inflation and changes in the cost of living. It is calculated on annual income.

What are benefit-in-kind values?

Benefit-in-kind values (Sachbezugswerte) are the value of benefits in kind or non-cash benefits that an employee receives from their employer. These can be granted, for example, in the form of benefits in kind such as the use of accommodation, a company car or meals, or in the form of cash benefits such as subsidies or vouchers.

The benefit-in-kind value serves to make sure that non-cash benefits are also recorded for tax purposes and taxed. .

Increase in the minimum wage

The minimum wage is the lowest hourly wage set by law that an employer may pay an employee. It is meant to make sure that employees receive an adequate income that meets their basic needs and protects them from exploitation.

With the increase in the minimum wage, the earnings limit for minijobs is being raised as well.

Increase in the maximum amount for all-electric vehicles

The maximum amount for all-electric vehicles is often a tax incentive introduced by the government to encourage the purchase and use of environmentally friendly vehicles.The amount indicates up to which purchase costs tax advantages are offered. If the purchase price is higher than that, no advantages apply to the buyer.

The maximum amount for all-electric vehicles can change in order to adapt to market conditions, policy goals and the promotion of innovation and competition.

Additional meal expenses

Additional meal expenses (Verpflegungsmehraufwand) refers to the tax treatment of the cost of meals during a business trip or similar. If employees work away from their place of work for professional reasons and as a result have expenses that go beyond their usual costs, those expenses can be deducted for tax purposes.

The level of the additional meal expenses allowance is usually governed by the tax rules in Germany, but it can also vary depending on the duration and location of the business trip.

Tax-free allowance for company events

The tax-free allowance for company events is a tax rule. Within this amount, companies can give their employees tax-free benefits in the form of company events. In the past this amount was €110 per employee per year.

The one-fifth rule in the wage tax procedure

The one-fifth rule (Fünftelregelung) is also anchored in tax law. It is applied to give favourable treatment to the taxation of extraordinary income. Extraordinary income here means severance payments, redundancy compensation or other one-off income. The one-fifth rule makes it possible to spread the income over five years and thereby reduce the tax burden.

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The Future Financing Act

Last November the German Bundestag passed the Future Financing Act (Zukunftsfinanzierungsgesetz). The law is intended to strengthen start-ups and scale-ups through more attractive conditions for employee share ownership and easier access to the capital markets. With it, the German federal government wants to mobilise more private capital and make Germany a more attractive financial centre.

Digitalize processes for a better overview

Tax matters are a headache of a topic even without all these changes. Staying up to date and staying within the law already costs enough working time as it is.

That is why clockin takes a fair amount of work off your hands. With the clockin app your employees record their working hours digitally. The collected data does not have to be transferred by hand into the payroll system at the end of the month. You can integrate clockin seamlessly with other programmes without any trouble.

Integrations with lexoffice, Paychex and DATEV make payroll accounting, accounting and administrative processes and payroll and HR administration processes easier for you.

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