Payroll tax deductions too high? Employees must appeal against payroll tax returns
According to a recent and amended decision by the Federal Fiscal Court (Bundesfinanzhof, BFH), employees are no longer entitled to submit their own refund claims to the local tax office if their employers have wrongly withheld payroll tax. The report that follows outlines the background as well as the practical consequences.
Previous views of the BFH and the fiscal administration
If an employer withheld payroll tax for a foreign employee who was not subject to income tax liability in Germany, hitherto the employee had been able to apply to the tax office responsible for the place of business for a refund of the wrongly withheld payroll tax by analogy with Section 50c(3) sentence 1 of the Income Tax Act (Einkommenssteuergesetz, EStG). The same applied for an employee with restricted tax liability where another country had the right to tax the remuneration under a double taxation agreement (DTA) and the wrongly withheld payroll tax could not be refunded via an income tax assessment for taxpayers with restricted tax liability. The idea behind this was the application by analogy of the rules for the refunding of capital gains tax.
New ruling by the BFH - No legal basis for the refunding of payroll tax
The Sixth Senate of the BFH - which has been responsible for cases regarding the taxation of international employees since 1.1.2024 - has now decided in its ruling of 9.4.2026 (case reference: VI R 12/24) that no direct entitlement to a refund of payroll tax by analogy with Section 50d(1) sentence 2 EStG exists for employees. Section 50d(1) sentence 2 EStG (old version) was created by German legislators solely as a rule for the refunding of capital gains tax. They did not include a legal basis in the legislation for the refunding of payroll tax. Although they would have had to do this if they had also wanted the payroll tax that was wrongly remitted to be refunded without an appeal first being made against the payroll tax return.
Moreover, the BFH saw no legal loophole that needed to be closed through the application by analogy with Section 50d(1) sentence 2 EStG (old version). This is because an employee has the possibility to obtain a refund of the payroll tax that was wrongly withheld and remitted by their employer. The employee is able to appeal, in their own right, against the payroll tax return submitted by the employer that constitutes the legal basis for the payment of payroll tax. In the case in question, the BFH refused to reinterpret an employee’s application for refunds of payroll tax as an application for the amendment of the payroll tax returns.
