Tax Return and Declaration Duties for Employers

Which duties does an employer have to fulfill for his employees?

Employers are not only to pay the salary but also have to take care of some tax and social security duties of their employees. Non-compliance can mean personal liability of the employer ...

For which taxes am I liable? What about social security premiums?

You are liable not only for your own taxes and personal social security payments but also for income tax advances, and social security premiums of your employees. It is your responsibility to withhold and forward the wage tax and social security premiums to the relevant authority. Employees are always taxed at the source, i.e. they receive their monthly salary usually only after deduction of wage tax, solidarity surcharge and any church tax, as well as social security contributions (see

Hiring my first employee here in Germany, what does German law consider as a salary? What is really subject to taxation?

The employer’s main concern is to understand what the employee’s salary is and all the formalities and duties tied to paying a salary. All income that an employee receives from his or her employment is considered as “salary” and is generally subject to taxation (§2 I EStDV, §19 EStG). It is irrelevant how this income is classified or named. This income can be in cash, kind, or paid services, etc. In other words, anything received as a reward or in consideration for the work on behalf of the employment is to be treated as a salary.

Oops. I just noticed that I missed the tax office’s pay day and forgot to pay the payroll tax. Are there any penalties?

The statutory consequences of late payment are “late surcharge” of 1% p.a. on the late tax amount downwardly adjusted to next amount dividable by 50 (§240 AO). Taking a look at the practical side, when a payment is late: The tax office does not have to sue you but the assessing officer will consult a different department of the same office to collect. You will usually only receive one reminder before collections start.

How do I determine how much the income tax and unemployment and welfare premiums will be?

§39b EStG requires that the employee submits his tax identification number to his employer at employment or at the beginning of a calendar year. As long as the employee does not submit his tax details to the employer, the employer is obliged to treat the employee as if he belonged into tax class VI – the highest tax class (§39c EStG). The employer will have to adopt the wage tax deductions in the next possible month after having received the tax card.

What formalities do I have to obey?

The employer has recording duties (§41 EStG). Each and every employee is to be accounted in a separate payroll which reflects the personal details of the employee, his income, including tax free payments, the withheld payroll tax and any assumed wage tax. Pursuant to §41a EStG, the employer has to electronically submit a wage tax return latest ten calendar days after a month of employment has passed. N.B. all employers are expected to submit their return exclusively electronically. Though the law does mention the case of an exception in cases of undue hardship, it has not yet been granted. The employee is entitled to receive his wage slip at the end of every month.

How long are we liable for the wage tax and so on?

Your liability is limited to three years for contributions to social security carriers. In other words, these authorities can collect three years of withheld premiums. This will especially be interesting, when you outsourced a former employee into his own business and this activity turns out to be only  a “dummy entrepreneurship (Scheinselbständigkeit)”.

How and when do I submit the wage tax return and social security premiums?

You are expected to declare the relevant declarations electronically! The wage tax of all employees is to be paid in one sum either monthly, quarterly or annually to the tax office competent for your business. Further details about the employees to which the paid wage tax refers are not demanded.

Heck I just survived a wage tax audit and the tax office determined that I am to pay wage tax and social security premiums. Can't I collect anything from my employee?

Oh sure you can be reimbursed - though only partially. Forget the idea of any "damages", that will not work. You can be reimbursed from your personnel for the employee's share of social security premiums. You can collect the wage tax in full as this is not yours, the employer's debt, but that of the employee.


Tagged under: Payroll, Business Law,
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