The progression clause is an unpleasant surprise many people only experience when filing their tax return. Even though benefits like short-time work allowance, parental allowance, sick pay or unemployment benefit are tax-free, they increase the tax rate applied to your remaining income. This can lead to back payments of several hundred to a thousand euros.
An example: you earn €30,000 a year and receive €10,000 in parental allowance. The parental allowance itself is tax-free, but your tax rate is calculated as if you had earned €40,000. This higher tax rate is then applied to your €30,000. Result: you pay about €800-1,000 more tax on your salary than you would without the parental allowance.
Practical tip: if you're receiving or have received wage-replacement benefits, you should set aside money for possible tax back payments. As a rule of thumb: put aside around 10-15% of the wage-replacement benefit received. On €10,000 of short-time work allowance, that would be a reserve of €1,000-1,500 for your tax return.