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I'm in a kind of ridiculous situation right now, but I can assure you that it is real =)

I noticed that my employer forgot to apply my last raise, which was at the end of 2019. In addition to that, my boss noticed that I should have got a raise in 2020, but also didn't.

No bad feelings here, we talked about it and I will get the money I should have got.

The thing I'm thinking about is taxes in this situation. I don't really know how the back pay will be handled, but as far as I know, I will get one big payment at the end of this year. So the raise from December 2019 for the last 24 months plus the raise from December 2020 for the last 12 months. I don't really know how much it will sum up to, but I think it will be a few thousand euro before tax.

I find taxes pretty complicated, so I don't know what would be better: to have one big payment or several smaller payments in the next months. Because, as far as I understood, you have to pay a bigger percentage in payment taxes. And the percentage will raise sharply when I have this big sum on my paycheck. My boss said it should even out, because I would have paid a larger percentage anyway if I got the raises in the last two years.

What would be the best way (in my favor of course =)) to handle this back pay? Or is there an online tool where I can calculate it myself?

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    I think you need an accountant in your locale to help with this. We aren't financial experts and you probably don't want to rely on our input for this critical question.
    – cdkMoose
    Dec 2 '21 at 19:20
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    Possibly more relevant on money.stackexchange.com
    – cdkMoose
    Dec 2 '21 at 19:21
  • @cdkMoose: Yes, I wasn't really sure where to put it, should I move the question? Dec 2 '21 at 19:24
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    Some countries will only correct taxes over 2 years,happened to me but the tax office made my employer pay me what was owed even though they did not reimburse the employer - a “tax” for messing up…
    – Solar Mike
    Dec 2 '21 at 19:30
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    I’m voting to close this question because this question needs financial advice, not workplace advice. It should be moved or migrated.
    – BSMP
    Dec 3 '21 at 0:49
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The final tax rate is calculated over yearly earnings, so there is no difference between a single payout and spreading it out over a year.

If it is still possible to pay out part in the current year, and part in the next one, that would be useful.

The best approach would be an attempt to retroactively correct the figures, but that will require some cooperation from the tax office, as that would spread out the payments over multiple years.

Taxes on monthly payments are calculated according to what your tax rate would be if every month was the same, so a single big payout will cause a higher percentage to be applied to that particular month, and you will have to file the forms at the end of the year to correct this.

This is a standard process, same as for everyone else whose earnings are not consistent between months -- e.g. someone who earns 1000 for six months, then nothing for the rest will have the same tax rate as someone who earns 500 every month consistently, so they will have overpaid at the end of the year (as the taxes were taken out assuming a basis of 12,000) and get a return as soon as they file.

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    As you write, there are special rules in German tax law for delayed payments for from previous years ("Nachzahlungen"). There also special (slightly different) rules for social security payments ("Sozialversicherung"). A short overview is here: nwb.de/steuerrecht/2019_04_16_nachzahlung . But to get this right, half an hour with a specialist is probably a good idea, even if that advice costs you some money.
    – sleske
    Dec 3 '21 at 7:22
  • One thing to consider: Once your taxable income is above the rate where you pay the max rate of 42% (>57,919€ in 2021), it doesn't really matter as you'll always pay 42% on any additional income Dec 6 '21 at 9:40

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