Filing taxes in Germany

In Germany, by far, not all citizens are obliged to file a tax return. However, in most cases it makes sense to do so voluntarily. On average, employees receive 1,027 euros back from the tax authorities if they file a tax return in Germany and declare their individual income-related expenses or pension expenses. Contributions to […]

Seamus Wolf
From Seamus Wolf

10. Jan 2023

Reading time: About. 4 minutes

In Germany, by far, not all citizens are obliged to file a tax return. However, in most cases it makes sense to do so voluntarily. On average, employees receive 1,027 euros back from the tax authorities if they file a tax return in Germany and declare their individual income-related expenses or pension expenses. Contributions to Riester and Rürup pensions can also be deducted. The tax for married couples in germany can be reduced as well if couples choose the optimal tax class.

Why file a tax return?

Not everyone in Germany has to file a tax return. Single employees, for example, do not have to – the tax is automatically withheld by the company. Nevertheless, tax filing in Germany can be worthwhile for this group as well.

When do I have to file a tax return?

1. if you earn additional income from renting and leasing, pensions or from side jobs.
2. if you receive tax-free wage replacement benefits such as parental allowance, short-time working allowance, sickness benefit or unemployment benefit, provided the benefits exceed 410 euros per year.
Employees who are assessed jointly with their spouse must also file a tax return.

When does a voluntary tax return make sense?

Almost always, because on average an employee receives a refund of around 1,027 euros.

What is the tax saving effect?

You can claim tax reductions of all kinds in the tax office’s tax return forms. Here are some examples.

Which expenses reduce my tax burden?

1. income-related expenses: these are, for example, travel expenses, a workroom and work equipment such as work clothes or a computer.
2. special expenses: these are, for example, contributions to pension provision (details under Pension tax rates), insurance expenses.
3. extraordinary expenses, such as those arising from illnesses.
4. household-related services, such as the costs of heating maintenance.
If you do not fill out a tax return, the tax office usually only recognises the lump-sum allowances. Individual expenses, on the other hand, can be claimed in full in the tax return, which can save quite a bit of tax.

Pension tax rates

Your pension tax rate depends on the year of retirement, the amount of your pension, but also on any other income.
If you retire in 2023, you will have to pay tax on 83 percent of your pension. After that, the taxation rate increases annually until it reaches 100 percent in 2040. From this point on, the pension must be fully taxed.

To which incomes does the pension tax apply?

However, pension tax does not only have to be paid on the statutory pension.
For example, the following pension payments must also be taxed:

-Private pension provision

-Occupational pension provision

-Riester pension

-Rürup pension

-Reduced earning capacity pension

-Survivor’s pension

However, you only pay tax on the statutory pension if all your income is above the basic tax-free amount. This is 10,908 euros for 2023.

Save tax with pension expenses

Private old-age provision is indispensable today, as the statutory pension is not sufficient for a carefree retirement. Some types of private old-age provision are tax-deductible.

Can contributions to the Rürup and Riester pensions be tax deductible?

Payments for the Rürup pension for old-age provision and for the Riester pension can be claimed as special expenses in the tax return. The payments can be listed in the annex “Vorsorgeaufwand” up to the maximum limit of 26,528 euros.

Do Riester or Rürup pensions have to be taxed when paid out?

The proportion of payouts on which taxes are due in the pension phase is also steadily increasing. In 2023, 83 percent of the Rürup pension must be taxed. Every year, another percent is added until it finally has to be fully taxed in 2040.
The so-called deferred taxation also applies to the Riester pension – this means that income tax will be due on the payouts later. As with the Rürup pension, the changeover to taxation is also gradual here, so that it does not have to be fully taxed until 2040.

Do contributions to the statutory pension also have an effect on taxation?

The statutory pension insurance can be fully claimed by employees for tax purposes, up to the maximum amount set by law. Contributions to occupational pension schemes and agricultural pension funds are also largely deductible. Only partially deductible are the so-called “other pension expenses”, such as contributions to statutory health and long-term care insurance.

Can I also deduct occupational pension provision for tax purposes?

With deferred compensation in occupational pension schemes (bAV), taxes and social security contributions can be saved during the payment phase. Employers also benefit from lower ancillary wage costs.
If the occupational pension is paid out in old age, it must be taxed as income. This deferred taxation means that the contributions saved are tax-free during the payment phase, but tax liability begins with the payout. This method has the advantage that most people have a lower tax rate in old age than during their working life.

Tax for married couples in germany

After marriage, both spouses automatically receive tax class 4, but you can also choose tax class combinations 3 and 5, and tax classes 4 and 4 with a factor.
Couples may choose the tax class combination that is most favourable for them. It is possible to change the tax class several times a year by submitting a written application.

When does the 4/4 combination make sense?

If both partners earn about the same amount, this combination makes sense in order to distribute the tax burden evenly.

When does the combination 4/4 with factor make sense?

If both partners earn slightly different amounts, the tax class combination 4/4 with factor can distribute the tax burden evenly and additional tax payments remain low.

When does the 3/5 combination make sense?

If there is a significant difference in salary, the higher-earning partner should switch to tax class 3 and the lower-earning partner should choose tax class 5 in order to optimise the joint monthly net income.

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