Found your dream holiday job? Tax, social security and family allowance shouldn't be underestimated

The "return to normality" after COVID-19 and the generally high demand for labour also provide attractive framework conditions for holiday jobs. Holiday jobs are particularly in season during the summer months and cater not only to the incentive for additional monetary earnings but also to the acquisition of practical experience. To avoid any unpleasant consequences (after the fact), tax and social security aspects as well as potential effects on family benefits should also be taken into account. The following explanations obviously apply not only to "holiday jobs" but also to ongoing jobs or paid internships alongside studies.

Tax consequences

The tax treatment of holiday jobs fundamentally depends on whether you are employed by the employer or working under a contract for work or a freelance service contract. If the employment relationship lasts only one month, for example (but in any case less than a full year) and social security contributions and income tax are withheld due to a correspondingly high wage, it is advisable to carry out an employee tax assessment in the following calendar year. The application for an employee tax assessment can even be submitted retrospectively for up to 5 years and regularly leads to a tax credit, as the earnings are spread over the whole year and the income tax is recalculated. If applicable, an employee tax assessment may also be carried out automatically.

If employment is by a contract for work or on the basis of a freelance service contract, then income from self-employment is considered and no wage tax will be withheld. An income tax return must be filed from an annual income (in 2023, taking into account measures to abolish cold progression) of €11,693 or €12,756 if wage-taxable income is also included. VAT liability in connection with holiday jobs on a contract for work basis or as a freelancer is theoretically conceivable, but is only applicable once net income exceeds €35,000, as the de facto exemption from VAT as a small business applies up to that point. No VAT return needs to be filed for net turnover up to €35,000 either.

Family allowance

The earnings from a holiday job, particularly if they coincide with other income, can lead to exceeding the additional earnings limit for family allowance. If this is the case, the amount exceeding the limit must be repaid. The entitlement to the child tax credit is also linked to family allowance. The (mostly unwelcome for parents) repayment obligation arises if a taxable income of more than €15,000 (since 1 January 2020) is earned in the calendar year, with certain special circumstances to be considered when determining this limit. The most important exception is age, as the additional earnings limit is not relevant for young people before they reach the age of 19. However, from the beginning of the calendar year following their 19th birthday, a distinction must be made as to whether the income (e.g. from a holiday job) falls within the period for which family allowance was received or not. For example, if family allowance is not received for a short period, income during this period is not decisive for the calculation of the additional earnings limit. Family allowance is not received, for instance, if the intended duration of study in a section of studies has been exceeded. Similarly, income such as social assistance as tax-exempt income, compensation for an recognised apprenticeship, or orphan's pensions are not considered relevant income. The income relevant for the additional earnings limit is ultimately determined after deducting expenses related to the income. It is important to note that not only active income (which in the case of a holiday job is usually income from employment) but all income subject to income tax is relevant for family allowance – however, final-taxed income (e.g. interest or dividends) remains excluded from taxation for tax system reasons.

In addition to monitoring income for the current year to anticipate exceeding the earnings limit (e.g., through holiday employment), it is important to note that if the earnings limit is exceeded, family allowance must be reapplied for in the following year. The prerequisite, of course, is that taxable income in the new year falls below €15,000. The conditions for receiving family allowance or for exceeding the earnings limit do not change even if the family allowance is paid directly to the child. This can be applied for at the tax office upon reaching adulthood with the consent of the entitled parent and then leads to the transfer of the child tax credit to the specified account. Claims for repayment concerning family allowance continue to be directed at the parents.

Consequences in social security

The majority of vacation interns – provided they are employed and not working under a contract for work or a freelance contract – are treated like normal employees from a social insurance perspective. If the gross salary exceeds €500.91 per month, mandatory insurance and the deduction of social security contributions apply.

Finally, from an employer's perspective, it should be ensured that summer trainees are paid accordingly, as otherwise, significant administrative penalties may be incurred (keyword: "Lohn- und Sozialdumpingbekämpfungsgesetz" - Law on Combating Wage and Social Dumping). It must be ensured that neither the basic wage stipulated by the collective agreement is undercut, nor that interns are not granted remuneration under employment law, which is due according to law, ordinance, or collective agreement (e.g. overtime or allowances according to law or collective agreement).

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