Adjustments in the context of combating the cold progression for 2024

In the autumn of 2022, the abolition of the cold progression was decided upon (See also the post from October 2022), to counteract the creeping tax increase caused by higher tax brackets in salary increases. The measures against the cold progression are divided into two areas. First, the income tax rates are automatically adjusted by 2/3 of the inflation rate annually. Second, the compensation of the remaining third is to be carried out by ministerial decree. For the year 2024, an inflation to be equalized of 9.90 % was calculated based on the average inflation rates of July 2022 to June 2023. The measures to compensate the remaining third by ministerial decree were recently presented in a ministerial speech and were approved in the ministerial council on September 27, 2023. They are presented below in summary form.

Relief for low and middle-income earners

The relief for low and middle-income earners is achieved through a more comprehensive, staggered adjustment of the threshold amounts applicable to the 1st to 4th tariff levels, with a varying percentage of 3.3 percentage points (1/3 of 9.9 %) adjusted to the inflation rate %. In the first tariff level, the adjustment is then 9.6 % in total %, in the second tariff level 8.8 in total, in the third tariff level 7.6 in total, % and in the fourth tariff level 7.3 in total.

The deposit amounts, together with the associated income and entry-level thresholds, as well as the SV refund and the SV bonus, will be adjusted by a total of 100 points to the inflation rate - 2/3 of this % amount will be adjusted automatically and another third (i.e., another 3.3 percentage points) will be adjusted by the decision of the Minister Council.

Finally, the basic tax exemption is also raised as part of the benefit from the profit exemption from the current 30,000 € to 33,000 €. From 2024 onwards, therefore, a maximum of 4,950 € (15 % of 33,000) can be deducted from the tax profit without any further requirement, such as qualifying investments.

Combating the labor shortage and creating positive incentives for performance

The further tax incentive for overtime pay is intended to contribute to positive performance incentives and also to combat the labor shortage. It was therefore decided to raise the monthly allowance from 86 € to 120 €, as well as to temporarily fix the monthly allowance for the first 18 overtime hours at 200 € per month.

In connection with the tax incentive for the dirt, hardship and danger allowance as well as the supplements for Sunday, holiday and night work, the monthly exemption amount was increased from the current 360 € to 400 €.

The law on the use of the variable third from the abolition of the cold progression ultimately leads to the fact that the tax regulations introduced in 2021 in the context of the COVID-19 pandemic regarding the home office work of employees are extended indefinitely.

Relief for children and families

The increase in the child allowance from €550 to €700, decided by the Council of Ministers, is intended to relieve the burden on children and families. As part of the increase in subsidies for childcare and the expansion of the on-site nurseries, the maximum tax-free allowance for employers for childcare for children up to 14 years has been doubled from €1,000 to €2,000. Moreover, the subsidized or free use of on-site nurseries is also tax-free even when the facility is also used by non-employee children. The law is expected to be passed by Parliament in November.

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