The annual payroll tax adjustment by the employer (Lohnsteuer-Jahresausgleich) is a procedure in which your employer, after the year ends, compares the payroll tax withheld with the annual payroll tax due on your annual salary and refunds any excess. For career starters and working students with fluctuating pay this can matter, because monthly payroll tax is often higher than the annual tax when income is irregular. This guide explains the rules of section 42b of the Income Tax Act (EStG) and when a tax return is the better route.
In short: In the annual payroll tax adjustment, the employer refunds payroll tax withheld in excess, provided you were continuously employed by that employer during the adjustment year. Under section 42b EStG the employer is entitled to do so and is obliged to if it has at least ten employees on 31 December. It does not apply, for example, with tax class V or VI or with an entered allowance. Last updated: November 2026.
Key points
- The adjustment applies only to employees continuously employed by the same employer during the adjustment year (section 42b(1) sentence 1 EStG).
- The employer is obliged to carry it out if it has at least ten employees on 31 December.
- It does not take place if you request that it be omitted or if certain exclusion grounds apply.
- Only salary from this one employment is considered. Work expenses and other deductions do not count.
- A tax return remains the more comprehensive route if you have further deductions.
What is the annual payroll tax adjustment by the employer?
Under section 42b(1) sentence 1 EStG, the employer is entitled to refund to employees who were continuously employed by it during the adjustment year the payroll tax withheld, to the extent that it exceeds the annual payroll tax on the annual salary. For this the employer determines the annual salary from its own employment, deducts any pension allowance and old-age relief amount where applicable and calculates annual payroll tax using the tax class of the last pay period of the year. If that is lower than the total payroll tax collected, the employer refunds the difference (section 42b(2) EStG).
The background: monthly payroll tax is designed for steady pay. If your pay fluctuates strongly, for example because you work a lot during semester breaks and little otherwise, the sum of the monthly amounts can exceed the annual payroll tax. The annual adjustment corrects this within the payroll itself.
Does my employer have to carry out the adjustment?
That depends on the size of the business. If the employer has at least ten employees on 31 December of the adjustment year, it is obliged to carry it out under section 42b(1) sentence 2 EStG. In smaller businesses it is merely entitled, and you have no legal claim to the adjustment. You can, however, politely ask for it.
In terms of timing, under section 42b(3) EStG the adjustment is permitted at the earliest with the payroll for the last pay period ending in the adjustment year and at the latest with the payroll for the last period ending in February of the following year. You will therefore recognise a refund as a credit on the payslip for December to February.
When does the adjustment not take place?
Section 42b(1) sentence 3 EStG lists several cases in which the employer must not carry out the adjustment. The most important ones for career starters and working students are in the table.
| Exclusion ground | Practical meaning |
|---|---|
| You request that it be omitted | You opt for the tax return instead |
| Tax class V or VI during the year (wholly or partly) | Typical with several jobs or joint assessment with unequal incomes |
| Allowance or addition amount applied to payroll tax | See our guide on the payroll tax allowance |
| Factor method applied | Concerns married couples |
| Certain wage replacement benefits received, such as short-time work allowance or maternity pay supplement | The adjustment would be incomplete |
| Capital letter U in the payroll tax certificate | Interruption of pay |
| Foreign income without German payroll tax deduction | An assessment is then needed |
If you have also had an allowance entered, your case falls outside the employer procedure. How to apply for one is explained in our guide on entering a payroll tax allowance with the tax office.
Annual adjustment or tax return: which fits better?
The annual adjustment is a simplification. It looks only at salary from the employment with the respective employer. Work expenses above the lump sum, special expenses, loss carryforwards from studies and income from other sources are not considered. Anyone with such items usually reaches a more complete result through the income tax return.
| Criterion | Annual adjustment by the employer | Income tax return |
|---|---|---|
| Who does it | Employer | You, at the tax office |
| What is considered | Annual salary from this employment | All income and deductible costs |
| Payout | With the payslip | By the tax office after the assessment |
| Effort for you | Low | Higher, but more comprehensive |
| Loss carryforward from studies | Not possible | Possible |
The loss carryforward is often decisive for career starters. How it works is covered in our guide on loss carryforward in studies.
An example without euro amounts (assumption: working student in tax class I with high pay in summer and low pay otherwise). In summer, payroll tax is withheld on the high monthly amounts, in other months almost none. The annual payroll tax that the employer calculates after year end can be lower than the sum. The employer pays back the difference. If you also have commuting costs above the lump sum, a look at the tax return is worthwhile.
Frequently asked questions
Can I apply to my employer for the annual adjustment?
Section 42b EStG provides no right to request it. The employer is either entitled or, with at least ten employees, obliged. You can only request that it be omitted.
Does the adjustment replace the tax return?
No. It is a payroll withholding procedure. A tax return can take further deductions and other income into account. Note that certain obligations and deadlines apply to an assessment, which our German guide on the 2026 tax return describes.
Does the adjustment apply if I change jobs during the year?
Only for employees who were continuously employed by the same employer during the adjustment year. When you change, each employer checks only its own employment, and circumstances at other employers are disregarded (section 42b(1) sentence 4 EStG).
How can I tell it has been carried out?
On the payslip for December to February, a refund appears as a payroll tax refund. If it is missing, an exclusion ground may apply, or the employer is not using its option.
Is the adjustment also possible in a mini-job?
In flat-rate taxed mini-jobs there is no individual payroll tax that could be refunded. The annual adjustment concerns regular payroll tax withholding. On payroll tax in a mini-job see our German guide mini-job and payroll tax.
What to do now
- Check on your payslip whether tax class and any entered allowance trigger an exclusion.
- Ask your employer whether and when it carries out the annual adjustment.
- Check the payslips from December to February for a refund.
- In parallel, collect receipts for the tax return if you have further deductions.
- Decide before the tax return deadline whether an assessment is worthwhile in addition.
Related guides
- Taxes 2027 for students and career starters: overview
- Reclaiming payroll tax during studies
- Tax Return for Students: How to Get Your Money Back
- Part-Time Jobs and Taxes for Students in Germany
- Tax class when starting your career
Sources: Section 42b Einkommensteuergesetz, gesetze-im-internet.de (in German), accessed November 2026.
Last updated: November 2026. This guide is general information, not individual advice. Payroll processing is the responsibility of your employer.
