What you need to know about tax changes in Germany in 2020

What you need to know about tax changes in Germany in 2020
Photo: DPA
There's lots of changes in store next year for people who pay taxes in Germany. We've put together an overview of what you need to know.

Basic allowance for income tax increases

From January 1st 2020, single people will have a higher basic rate exemption from income tax. Income will remain tax-free up until €9,408. That is €240 more than in 2019, said the NRW Consumer Advice Centre. For married couples, the tax-free allowance rises to €18,816.

READ ALSO: The ultimate guide to paying taxes in Germany

Child tax-free allowance (Kinderfreibetrag) increases

Photo: DPA

The tax-free allowance for parents with children (Kinderfreibetrag) will rise in 2020 to €5,172. Currently the amount is €4,980.

Parents can receive this allowance instead of child benefit (Kindergeld) if it works out at a better deal for the family. When income tax is paid, the tax office automatically checks which allowance pays more for parents. Child benefit is not set to rise again until 2021.

Earmarked cash benefits being cut

In principle, employers can grant their employees benefits in kind (often known as perks) up to a value of €44 per month free of charge or at a reduced rate without incurring taxes.

From January 1st, however, earmarked cash benefits, among other things, will cease to apply.

According to the German Taxpayers' Association, subsequent reimbursements of costs to employees, such as for a petrol receipt, will no longer be tax-free.

But there are exceptions: employers can continue to reimburse travel costs on business trips tax-free. There will also be no taxes on certain gift cards or vouchers.

READ ALSO: These are the 8 German tax breaks you need to know about

Meal expenses for employees goes up

Employees who work away from home for professional reasons can look forward to a higher meal allowance from 2020.

If the trip lasts for more than eight hours, employees will now be entitled to a €14 allowance for food instead of €12. If the employee is away for the whole day, i.e. 24 hours, a new flat rate of €28 applies. For trips lasting several days, the flat rate for the arrival and departure day increases by two euros to €14.

The employer can get a refund on these amounts tax-free. Or the employee can claim the lump sum as income-related expenses in his or her tax return – this way the employee can reduce his or her taxable income.

Relocation lump sum increase

From March 1st 2020, single people who change their place of residence for professional reasons will be able to deduct a flat rate of €820 from their tax bill.

Spouses and registered partners can declare €1,639 in their income tax return, says the Taxpayers' Association.

In addition, they can also deduct costs for the estate agent or the transport of furniture, for example.

Old-age provision: up to 90 percent deductible

Photo: DPA

People who put aside provisions for old age can deduct up to 90 percent of these expenses. According to the Taxpayers Association, the authorities will allow up to €22,541 for single people from 2020. 

Married couples and registered civil partners will be able to claim a total of €45,082 for tax purposes. The tax authorities will deduct the tax-free employer's contribution from the expenses for employees who pay into the statutory pension insurance.

Change in contributions

Those who receive an occupational pension may have to pay health insurance contributions on it. But from 2020, contributions will only be due on the amount exceeding the new allowance of €159.25 – and no longer on the entire pension, says the German Insurance Association (GDV).

READ ALSO: Prostitution, dogs and loneliness: A look at Germany's weirdest taxes

More people entitled to housing benefit

From 2020, more people will be entitled to housing benefit for the first time,  according to estimates by the NRW Consumer Advice Centre. This will affect benefit around 180,000 households across Germany.

Housing allowance is available to low-income tenants and owner-occupiers under certain conditions. The amount of housing benefit depends, among other things, on income, rent and the number of household members.

From 2020, the state subsidy for housing will increase. This means that a household with two people will receive housing benefit averaging €190 per month, according to consumer protection agencies – so far the subsidy for this amount of people has been around €145.

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