The 13th or 14th monthly salary appears on the payslip as “other payments”. The same applies to Christmas bonuses, holiday bonuses or other one-off payments that the employer grants in addition to the current salary. And yes, extra payments are a good thing to take with you anyway.
But there is a catch that spoils the fun a bit: the 13th month’s salary is fully taxable, which of course was to be expected. However, since there is something special about calculating income tax, there is less than you might expect. It is often assumed that an additional net salary will be paid. But this is not true.
Income tax for current payments can be found in the monthly income tax tables. However, they assume that you receive the same salary each month. If you suddenly receive an additional 13th monthly salary, the monthly tables will result in excessive income tax. It would then be as if your boss had doubled your entire annual salary.
In order to avoid this, the month of the payment, the income tax for the current payment is calculated according to the monthly table, and the 13th monthly salary is calculated using a special calculation using the annual table. Basically, you divide the additional monthly salary into 12 small increments for the regular monthly salary. Two types of annual salary are calculated for this purpose:
- Estimated annual salary: It includes all current compensation for the year as well as other compensation already paid. In this case, however, the 13th monthly salary is not included and other future payments are not taken into account.
- Relevant annual salary: Allowances or old-age allowance are now deducted from the expected annual salary. This results in the corresponding annual salary, for which the payroll tax is calculated according to the annual scale.
But the calculation goes even further: in the next step, the 13th monthly salary is added to the corresponding annual salary, then the payroll tax is recalculated. The difference between the two determined values of the wage tax results in the wage tax for the hitherto heavy 13th month salary.