Working with Taxes

This chapter provides an overview of taxes and discusses how to:

• Set up taxes.

• Enter tax data.

• Enter tax data for company cars.

• Calculate lump sum taxes.

• Process cash method taxes.

• Process annual income tax calculations.

• Run the tax auditor access process.

Understanding Taxes

As an employer, you are legally required to maintain and report a variety of tax data about your employees. To do this, Global Payroll for Germany offers these tables:

• Tax offices.

• Tax units.

• Church tax setup.

• Tax (General Tax Data, Tax Card Data, and Employee Carryover pages).

Global Payroll for Germany also enables you to perform more advanced calculations, such as lump sum taxes, cash method taxes, annual income tax calculations, as well as administer double taxation and global assignments.

Viewing Delivered Elements

The PeopleSoft system delivers a query that you can run to view the names of all delivered elements designed for Germany. Instructions for running the query are provided in the PeopleSoft Global Payroll PeopleBook.

See Also

Understanding How to View Delivered Elements

Setting Up Taxes

Use the Tax Units DEU (GPDE_TX_UNITS) component to set up taxes.

This section discusses how to:

• Enter bank details for tax offices.

• Enter tax IDs.

• Enter church tax rates and distribution information.

• Set up pay entity tax data.

PeopleSoft delivers much of the setup information needed to calculate taxes in the system. In the Tax Office component, PeopleSoft delivers address data information, but you must enter and maintain deposit data information. You also must provide the data on the Tax Units page. PeopleSoft delivers and maintains the Church Tax Table, so you are not required to enter any information on the Church Tax DEU page.

Pages Used to Set Up Taxes

Entering Bank Details for Tax Offices

Access the Tax Offices DEU - Address Data page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Tax Offices DEU, Address Data).

Deposit Schedule	Specify the date of deposit.
Filing Office	Select this check box if the tax office is a filing office for your company.

Entering Tax IDs

Access the Tax Units DEU - Tax Unit page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Tax Units DEU, Tax Unit).

Tax Office	Select a tax office.
Tax Number	Enter the employer's tax number.

Entering Church Tax Rates and Distribution Information

Access the Church Tax DEU page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Church Tax DEU, Church Tax DEU).

This table is maintained by PeopleSoft.

Setting Up Pay Entity Tax Data

Access the Pay Entities DEU - Tax Data page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Framework, Organizational, Pay Entities DEU, Tax Data).

Fiscal Year End	Select the end of your company's fiscal year.
Tax Unit	Select your tax unit.
Tax Chamber Bremen	Select the tax unit where the tax office is referenced, which receives the chamber tax Bremen.
Tax Chamber Saarland	Select the tax unit where the tax office is referenced, which receives the chamber tax Saarland.
Lump Sum Church Tax	This amount is deducted only if the employee belongs to a religion. If the employee does belong to a religion, enter Y.
Lump Sum Tax Rate	Enter an individual lump sum rate for the employer.
Church State	Enter the church state of the employer.

Entering Tax Data

Enter the tax data of your employees in the Taxes component, which consists of the General Tax Data, Tax Card Data, and Employer Carryover pages.

This section discusses how to:

• Enter general tax data for employees.

• Enter employee tax card data.

• Enter tax card data from employee carryover balance sheets.

• Enter tax privileged pension data.

• Enter tax privileged death benefit and severance data.

Pages Used to Enter Tax Data

Entering General Tax Data for Employees

Access the General Tax Data page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data DEU, General Tax Data).

Effective Date

The current date when you enter a new record.

Income Tax Data

Tax Adjustment

Entering Employee Tax Card Data

Access the Maintain Tax Data DEU - Tax Card Data page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data DEU, Tax Card Data).

Number of Children	Enter the number of children for deduction purposes.
Religion Employee/Spouse	Select the religion of the employee and the spouse. This is used in conjunction with information on the Church Tax DEU page to determine the applicable church tax rate.
*KUG Benefit Group	The KUG benefit group is determined in accordance with the German employment promotion act (Arbeitsförderungsgesetz).
*KUG Benefit Step	The KUG benefit step is determined in accordance with the German employment promotion act (Arbeitsförderungsgesetz).
Tax Office	Select the code of the appropriate tax office.
Community ID from Taxcard	Enter the community ID for the municipality that issued the tax card. The ID is printed on the tax card.
Locality	Enter the municipality that issued the tax card.
Exemption Annually	Enter the employee's annual tax exemption.
Exemption Monthly	Enter the employee's monthly tax exemption.
Accumultv Transport by Employer	Select this box if your company offers an accumulative transport of employees to the plant or company.
No Data from former Employer	Select this box if the employee does not give the earned salary from former employment. From 2004 on the employee is not required to tell the current employer this information.
Additional Tax Gross Annually and Additional Tax Gross Monthly	Enter data from the employee's tax card. The amounts are filled in the appropriate fields on front page of the tax card called Hinzurechnungsbetrag monthly and yearly.
Generate eTIN Number	A specific Tax identification number is generated automatically (using employee's name and birth date.
Tax Card Closed On	The closing date for the tax card. Retroactive changes are taxed according to the cash method if the tax card has already been closed. In this case, the field already contains a date. If the Tax Card Closed On field displays a date, the remaining fields on the Tax Card Data and General Tax Data pages are display-only. Delete the date if you want to reactivate these fields. If this field has no date at the end of the year, you can enter the tax card data in the tax card of the next year using the New Tax Card report.

See Also

Entering Church Tax Rates and Distribution Information

Entering Tax Card Data From Employee Carryover Balance Sheets

Access the Employer Carryove page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data DEU, Employer Carryove).

Note. This page has to be filled out if the employment starts mid year and the employee hands over to the employer the necessary salary information from the former employment(s).

The fields of the Employer Carryover page correspond to the numbered lines on the tax card.

Entering Tax Privileged Pension Data

Access the Pension Payment page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data DEU, Pension Payment).

It is possible for an employee to receive several, concurrent tax privileged pension payments. Due to legislative changes, the government has introduced a modified calculation of this tax advantage, decreasing the exemption every year. To capture details in support of the new calculation, starting in 2006 employers must enter a separate row for each entitlement of a new tax privileged pension payment.

New tax privileged pension payments are included in the calculation as of the effective date of the entitlement. While all entered rows are reported on the tax statement, only valid rows within the calculation period (between the begin and end dates) are used to calculate the tax exemption.

Entering Tax Privileged Death Benefit and Severance Data

Access the PensPay(Dth/Sev) page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data DEU, PensPay(Dth/Sev).

Beginning in 2006, it is required to calculate the tax exemption for tax privileged pension payments paid as a death benefit or as a severance payment differently from the standard bonus calculation for tax privileged pension payments. Accordingly, the death benefit and severance payments are now reported separately on the tax statement.

To process the tax exemption calculation, the PeopleSoft system provides two variables: DE_TX_STERBE for the Death Benefit Payment and DE_TX_VKAPA for Severance Payments. Entered values populate these variables, which are then used in the calculation and to populate two new system earnings: DE_ER_DTHBEN (death benefit payment) and DE_ER_SEVPAY (severance payment).

These earnings are processed in a new section: DE_TX_DTH_SEV_PAY. The new section is part of the German Process List, DE_AL_DEU1, and must be added to your own process list after the Section DE_TX_INIT.

If you do not want to use the standard earning, you can set up your own earning by using the previously mentioned variables as the amount and assigning them to the correct German Earning Accumulators (DE_A3_K1122 for Death Benefit and DE_A3_K1132 for Severance Payment). Note, however, that the variables should be processed only after processing section DE_TX_INIT.

Entering Tax Data for Company Cars

This section discusses how to enter tax data on company cars.

In Germany, many employees are given a company car by their employers. German law stipulates that this advantage has to be taxed.

If you want to calculate the tax advantage for a company car, input data about the car at the employee level. On the basis of this data, the taxable advantage resulting from the use of the company car is calculated.

Page Used to Enter Tax Data on Company Cars

Entering Tax Data on Company Cars

Access the Calculate Company Car Tax DEU page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Calculate Company Car Tax DEU, Calculate Company Car Tax DEU).

Car Identification	Enter the car identifier.
Start Date/End Date	Enter the dates for which this information is valid.

Car Details

Based upon the Car Identification code, this group box displays pertinent details about the car.

Costs Details

Advantage

This group box displays calculated information used in the tax calculation.

Calculating Lump Sum Taxes

In certain cases, you can calculate employee income tax independently of specific job characteristics by means of a lump sum tax rate. This section provides an overview of the most important statutory regulations regarding lump sum taxation and provides examples of how lump sum taxes are calculated.

Understanding Statutory Regulations for Lump Sum Tax

In certain cases, the government allows you to tax income according to a lump sum. When income is taxed at a lump sum rate, a certain percentage of an employee's pay is paid to the tax office, regardless of that employee's specific pay criteria. In such cases, the income tax table is not used. Applying a lump sum tax to an employee's income reduces the amount of work necessary and also often reduces the tax amount the employee pays. As an employer, you are responsible for paying income and church taxes.

You can establish fixed lump sum tax rates for certain earnings, such as:

• Temporary employment: 25 percent.

• Low-income employment (part-time work): 2 percent.

• Travel allowances: 15 percent.

• Direct life insurance: 20 percent.

• Meal allowances: 25 percent.

• Company events: 25 percent.

• Convalescence allowances: 25 percent.

For these kinds of earnings, you can process income taxes without applying to the tax office.

In certain cases, you can also process other earnings (one-time payments of up to EUR 1000 per year) according to specially defined lump sum tax rates. These rates are approved by the tax office on request. This rate also applies to income taxes changed by the tax office following an external income tax audit.

Church tax must always be paid, even if income is taxed at a lump sum rate. The base used for assessing church tax is the lump sum income tax. The tax office can waive claims for church tax if the employer can prove that some or all of the employees concerned are not members of the taxable churches.

In certain cases, a lump sum income tax assessment can trigger exemptions for social insurance payments. For example, travel allowances, direct life insurance, meal allowances, company events, and convalescence allowances are exempt from social insurance.

The calculation is done if certain earnings are assigned to the different lump sum accumulators (DE_A3_K2024 to DE_A3_K2514).

Processing Cash Method Taxes

An employee may often receive earnings that are related to a much earlier pay period. Because these earnings are subject to statutory tax and social insurance requirements, deductions must be made accordingly.

If certain payments cannot be taxed in the year in which they were earned (because the tax card for that year has already been closed), the payment and its tax portion are carried over into the following year.

Global Payroll provides you with the pay elements and the calculation rules for processing such payments according to the cash method. This section discusses legal requirements and compliance.

Legal Requirements and Compliance

Whether taxes can be assigned to the period in which they were incurred depends on whether an employee's tax card has already been closed. However, social insurance contributions that are paid later are always credited to the pay period in which the entitlement to the earnings originated.

Tax Deductions

Earnings are normally taxed (income tax, church tax, solidarity tax) in the year in which they are paid to the employee. The taxable portion of those earnings is calculated for each pay period (calendar month) and deducted from the employee's pay.

Earnings, such as overtime, merit bonuses, and expenses, however, are usually paid later. Similarly, entitlements that arise at the end of the year cannot usually be paid and taxed until the new year. However, you can assign these amounts to the year in which they were earned only if the employee's tax card has not yet been closed. Tax cards are generally closed during the first quarter of the following year in order to allow employees to file their income tax returns.

New payment amounts arising for a year for which the appropriate tax card has already been closed cannot be included in the closed year. Such amounts are carried over into the current calendar year (with an open tax card).

Social Insurance Contributions

Social insurance contributions for retrospectively paid earnings are also transferred to the DEUEV Provider later, but are credited to the pay period (month) in which the earnings entitlement arose. Here, the cash method cannot be applied; instead, the incurred payment method is applied, and the amounts are assigned to the month and year in which they are earned. The corresponding report to the DEUEV provider can be processed using the DEUEV function within Global Payroll. Be sure to comply with the March Clause.

Processing Annual Income Tax Calculations

Global Payroll uses three income tax calculations that cover the entire calendar year. This section provides explanations of the system requirements for these three processes, as well as some calculation examples.

Annual Income Tax Adjustment

This section provides the most important information about how annual income tax adjustments are processed by Global Payroll.

Purpose of the Annual Income Tax Adjustment

Over the course of a calendar year, there may be times when too much tax is paid because of varying incomes or because of an entry of an exempt amount on the tax card sometime during the year. The annual income tax adjustment process corrects this problem.

Annual Income Tax Adjustment by the Employer

Employers who employ at least 10 persons on December 31 must perform annual income tax adjustments. In accordance with §42 b EstG, other employers are entitled but not obliged to perform these tax adjustments.

Employees Eligible for Annual Income Tax Adjustments

Employers can perform an annual income tax adjustment only for employees to whom these conditions apply:

• The employee is subject to unlimited income tax.

• The employee is a resident in the country or has habitual abode there.

• The employee was employed without interruption in the adjustment year.

• The employee was employed on December 31 or is receiving pension benefits from the employer.

The employer may not perform annual income tax adjustments in these cases:

• If requested by the employee.

• The employee is taxed according to tax class V or VI in the adjustment year or in part of the adjustment year.

• The employee was taxed for a part of the adjustment year according to tax class III or IV.

• Payments to the employee were interrupted and, for this reason, had the capital letter U entered in his or her payroll balance, or a previous employer entered the capital letter U in the employee's tax card.

• The employee is taxed in the adjustment year partially in accordance with the general income tax table and partially in accordance with the special income tax table.

• The employee received earnings with tax concessions in accordance with the Global Assignment Decree (ATE) or that are tax exempt in accordance with the Double Taxation Agreement (DBA).

Annual Income Tax Adjustment with PeopleSoft Payroll

The annual income tax adjustment is automatically performed as a part of the normal payroll calculation in December. Thus, the current pay period for the annual income tax adjustment is December.

The following employees are excluded from the annual income tax adjustment:

• Employees for whom the Annual Income Tax Adjustment check box on the General Tax Data page has been manually deselected.

• Employees in tax class V or VI in the current tax year (or part of the year).

• Employees in tax class III or IV in a part of the current tax year.

• Employees with additional benefits (short-time work, additional maternity allowance, or old age part-time increase amounts).

• Employees who have the capital letter U entered in their tax cards.

• Employees who were not processed for the entire year using the General or Special Income Tax Table.

• Employees with earnings in accordance with a Double Taxation Agreement (DBA) or Global Assignment Decree (ATE).

The calculation rules determine the applicable taxable gross and the tax data from the balance table for the months January through November and include the data from the current pay period (December).

The taxable gross consists of regular earnings and other taxable earnings. Tax-exempt pension amounts, old-age relief payments, and the tax-exempt amounts entered in the tax card are included in their entirety in the process.

Church tax and solidarity tax must also be adjusted whenever the annual income tax adjustment is made for an employee. If the employee stops paying church tax in the course of the adjustment year and this is indicated on the tax card, the church tax annual adjustment can be closed.

These pay elements are generated for payback amounts:

• DE_TX_J001, income tax payback.

• DE_TX_J019, church tax payback.

• DE_TX_J023, solidarity tax payback.

The annual adjustment is performed only in December and is not rerun for retro payments.

Permanent Annual Income Tax Adjustments

This section provides an overview of permanent annual income tax adjustments in Global Payroll for Germany and provides an example.

Purpose of the Permanent Annual Income Tax Adjustment

The term permanent annual income tax adjustment describes a special process in the taxation of regular pay during the course of the calendar year.

In this process, the regular income tax deduction is made using the annual income tax table.

Thus, excess taxes that can result from fluctuating income are permanently adjusted. This process has nothing to do with an actual annual income tax adjustment.

Employees Eligible for Permanent Annual Income Tax Adjustments

Income tax for regular pay can be determined according to the anticipated annual pay with the annual income tax table if the following conditions apply:

• The employee is subject to unlimited income tax.

• The employer has the employee's tax card.

• The employee has been employed without interruption since the beginning of the calendar year.

• The letter U is not entered in the employee's pay balance or tax card.

• The employee has not received short-time work (KUG) or bad-weather allowances, maternity benefits, or compensation for income loss.

• The employee has not received earnings with tax concessions in accordance with the Global Assignment Decree (ATE) or earnings that are tax-exempt in accordance with the Double Taxation Treaty (DBA) during the adjustment year.

• The employee has not been transferred from the general income tax table to the special tax table or vice versa.

• Cases in which the employee cannot perform a permanent annual income tax adjustment essentially coincide with cases in which the employee cannot perform an annual income tax adjustment at the conclusion of the calendar year end.

Permanent Annual Income Tax Adjustment with Global Payroll

These employees are excluded from the permanent annual income tax adjustment:

• Employees for whom the Permanent Annual Income Tax Adjustment option on the page General Tax Data has been manually deselected.

• Employees with additional benefits (short-time pay, additional maternity allowance, old age part-time increase amounts.)

• Employees who have the capital letter U entered in their tax cards. (The capital letter U entered by the previous employer is currently not supported.)

• Employees who were not processed for the entire year using the general or special income tax table.

• Employees with earnings in accordance with the Double Taxation Agreement (DBA) or Global Assignment Decree (ATE).

The calculation rules determine the appropriate taxable gross amount and the tax data for previous months and include the data from the current pay period.

Calculation Example

Auxiliary calculation:

Income Tax on One-Time Payments

Carryovers listed on the tax card are included to determine accrued pay (January through July).

This table illustrates an example of calculated income tax for a one-time payment made in August 1999:

Running the Tax Auditor Access Process

This section provides an overview of the Tax Auditor Access process and discusses how to run the Tax Auditor Access process.

Working with the Tax Auditor Access Process

Since January 2002, the GDPDU (Guidelines for Data Access and Verifiability of Digital Data) have been the standards by which tax auditors get access to tax-relevant data in payroll systems (Paragraph 146/147). Employers have to archive tax-relevant data in machine-readable format and make the data available to tax auditors on request.

For these tax auditing purposes, it is necessary to generate formatted data files of tax-relevant payroll information in accordance with Paragraph 146/147. Global Payroll for Germany provides a generic XML description file and CSV data files for companies to use when submitting tax information to government tax audit agencies. Global Payroll for Germany provides a run control page with To and From dates, from which you can generate the XML file. The process extracts both current and archived data.

The following steps describe the Tax Auditor Access process:

1. Navigate to the Tax Auditor Access DEU page, found in Global Payroll, Taxes, Tax Auditor Access DEU.

2. Enter run control information, such as date range, file output, and requests that the file be created.

3. Click the Run button.

4. The files are created according to run control parameters.

Page Used to Run the Tax Auditor Access Process

Running the Tax Auditor Access Process

Access the Tax Auditor Access DEU page (Global Payroll & Absence Mgmt, Taxes, Tax Auditor Access DEU, Tax Auditor Access DEU).

Begin Date and End Date	Enter the begin and end dates for the data you want to generate. The End Date value must be later than or equal to the Begin Date value.
Pay Entity	Select the pay entity for which the report will be generated. Note. Wildcard characters are not allowed for this field because the process cannot be run for multiple pay entities.
Tax Data File and Pay Elements File	Enter the file names for the tax data that you will send to the auditor. Tax Data File contains detailed payroll results, and Pay Elements File contains detailed tax methods used for earnings and deductions.
Extension	Enter the file extension type for the Tax Data File and the Pay Elements File. The default file type is CSV.
Print Class	Enter a print class. This value is used to control the generation of the pay elements data.
Index File	Enter the name of the file. The tax auditor software will use the index file to interpret the structure of Tax Data File and Pay Elements File entries.
Extension	Enter the index file extension type. The default file type is XML.
Media	Enter the type of media, such as diskette or CD, with which you will send the file to the tax auditor.