Are you an employer looking to hire a high school or college student for a part-time or summer job, or are you a student yourself interested in working to earn some money? In either case, you should be aware of how a part-time or summer job is treated from a tax and legal perspective. Most people know that taxes are only due once income reaches a certain threshold. This allows many students to work without incurring tax deductions. But how exactly is this regulated in detail? At what point do you actually have to pay taxes? As your tax advisor in Düsseldorf and Oberhausen, we have summarized the most important facts.
Minor Employment vs. Jobs Subject to Social Security Contributions
When it comes to part-time and summer jobs, a distinction must first be made between two categories. On the one hand, there is marginal employment, which is tax-advantageous. However, if you’re not careful, you can quickly end up in a job subject to social security contributions. We’ve explained the two categories below:
1. Marginal employment (minijob)
When people talk about a part-time or summer job, they usually mean marginal employment, often referred to as a minijob. Jobs offered as minijobs have a maximum monthly earnings limit of 450 euros. When it comes to taxes and social security contributions, the minijob is the ideal scenario. Employees pay no taxes or social security contributions. In a part-time or summer job paying less than 450 euros, you therefore receive all the money you earn without having to pay any taxes or social security contributions. Although you cannot live on 450 euros as a full-time income, this is a good and sufficient income for many high school and college students.
2. Employment Subject to Social Security Contributions
It is certainly possible to earn more than 450 euros with a part-time or summer job, but this means that the employment is subject to social security contributions.
As soon as a job is classified as subject to social security contributions, you must pay into the pension fund and other social security programs, such as unemployment insurance and health/long-term care insurance. For students, it’s particularly important to note that most young people are still covered by their family’s health insurance under the law. If the 455-euro limit is exceeded, you can no longer remain on your family’s insurance and must pay the premiums yourself. If the limit is exceeded only slightly, this can mean that the actual additional income is significantly lower than the resulting costs. It is not uncommon for significantly less than 450 euros to remain after deductions.
Income tax also only becomes relevant once a certain income threshold is exceeded. To determine when you must start paying income tax for a part-time or summer job, you should take into account tax-free allowances and flat-rate deductions. The so-called basic allowance is essential here. For the year 2020, the basic exemption amount is 9,408 euros. Taxes are only due once your annual income exceeds this amount. So, based solely on the basic exemption, your monthly salary may not exceed 784 euros if you wish to avoid paying income tax.
If the basic exemption amount is exceeded, this does not necessarily mean that income tax must actually be paid. With the help of a voluntary tax return, the taxes paid can often be reclaimed. If the basic exemption amount is exceeded only slightly, it is often sufficient to deduct the flat-rate allowance for income-related expenses (1,000 euros) and the special expenses allowance (36 euros) from taxable income. Since both of these deductions are flat rates, every taxpayer is entitled to them. If both flat rates are taken into account, 870 euros per month are already tax-free. In special cases, additional allowances may be claimed. We refer you to our blog post on the topic of tax allowances.
Summary:
It is therefore clear that the most important threshold for tax-free employment is 450 euros. If you exceed this threshold even slightly, you must weigh whether the resulting taxes are worth the extra earnings. Regardless of the social security contributions mentioned, taxes are actually only due on “high” income (at least in relation to a side job). However, especially for student jobs or part-time work, the income threshold for income tax should also be taken into account.
What happens if you have multiple part-time jobs at the same time?
We often see people who want to hold down several part-time jobs. In principle, it’s not a problem to have a variety of jobs, each with a short working hours. However, it becomes problematic when it comes to income tax. As long as your combined income from multiple jobs remains below the basic exemption amount, there are generally no disadvantages to having multiple side jobs. However, once your income becomes taxable, it can get expensive. The “first” side job is classified by the tax office in tax bracket I, meaning it is taxed at the standard rate. All other jobs, however, are classified in tax bracket VI. This means the deductions for these jobs are significantly higher. You need to calculate whether the second job is worth it or if the disadvantages of the high deductions outweigh the benefits.
Part-Time Jobs and BAföG
Many students receive what is known as BAföG to finance their student life. In principle, you can hold a part-time job even while receiving government financial aid. In fact, most students work alongside their BAföG, as the aid alone is often not enough to cover living expenses. However, it is important to note that you should not earn too much. If your income is too high, it may be deducted from your BAföG funding. To avoid this, you must not exceed an annual allowance of 5,400 euros. On a monthly basis, this means that even with BAföG, the limit of 450 euros should not be exceeded. Students are therefore well advised to take on a part-time job.
Overview – What limits should be observed?
The income limits listed below apply to the year 2020 and show you when certain taxes and regulations apply. 
Questions for a tax advisor
As this article shows, there are clear rules and limits for part-time and summer jobs that make tax assessment easier. However, considerations must be made above the 450-euro limit. Tax implications should also be taken into account, especially for part-time jobs that generate a high income.
Do you have questions about this or another tax-related topic? Do you need active assistance with tax matters? As tax advisors in Düsseldorf and Oberhausen, we are your first point of contact. Our team of qualified tax experts draws on many years of professional experience to offer you the best possible service. With our broad industry expertise, we are the right choice, especially for business owners. Contact us to schedule a consultation.
