If you become unemployed, are sick for a longer period of time or are on parental leave, your employer’s salary payments will (partially) stop. However, money continues to flow into the account, thanks to some social wage replacement benefit, such as : unemployment benefit, sickness benefit, parental benefit.

These wage replacement benefits are tax-free. However, you may then have to pay more tax on your other taxable income. This is due to the progression clause and its special tax rate (§ 32b EStG).


The following wage replacement benefits are subject to the progression clause:

  • unemployment benefit I (ALG I), partial unemployment benefit, supplements to wages, short-time work allowance, winter compensation, insolvency benefit, transitional allowance, old-age transitional allowance, old-age transitional allowance equalization amount, maintenance allowance as a supplement, integration assistance pursuant to the Third Book of the Social Code or the Employment Promotion Act, maintenance allowance financed by the European Social Fund and benefits pursuant to section 10 of the Third Book of the Social Code which serve to cover subsistence costs; Insolvency benefits to which a third party is entitled under section 188(1) of the Third Book of the Social Code shall be attributed to the employee;
  • sickness benefit, maternity benefit, injury benefit, transitional benefit or comparable wage replacement benefits under the Fifth, Sixth or Seventh Book of the Social Code, the Reich Insurance Code, the Farmers’ Health Insurance Act or the Second Farmers’ Health Insurance Act;
  • maternity allowance, maternity allowance supplement, the special allowance under the Maternity Protection Act as well as the allowance in the event of employment prohibitions for the period before or after childbirth as well as for the day of childbirth during parental leave under civil service regulations;
  • unemployment benefits under the Soldiers’ Pensions Act, compensation for loss of earnings under the Infection Protection Act of 20 July 2000 (BGBl. I p. 1045), sickness benefit or transitional allowance under the Federal Pensions Act, tax-exempt top-up amounts or supplements pursuant to section 3 no. 28, compensation for loss of earnings under the Maintenance Act, parental allowance under the Federal Parental Allowance and Parental Leave Act.
  • foreign income that is exempt from domestic taxation due to a double taxation agreement is also subject to the progression clause.


For more detailed information on this subject, it is always best to consult an expert, such as: an accountant.