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TAXES

Why millions more German workers have to do a tax return this year

The deadline for completing your tax return is fast approaching and millions more German workers are required to fill in their tax return than usual. Here's what you should know.

A woman working on a computer.
Doing taxes online can be time consuming. Photo: dpa-tmn | Christin Klose

What are the dates to know?

The tax deadline was extended by three months this year, meaning people who plan to fill in their own tax forms have until October 31st to send in their declaration for 2020. 

Anyone who has asked an accredited accountant to do their taxes for them has until the end of May next year to hand in the declaration.

The government extended the deadline as a one-off measure to help people cope with the extra complications brought about by the pandemic.

Who needs to fill out a tax return this year?

Normally, people who are in tax class 1 (unmarried people whose sole source of income is their salary) don’t need to fill in a tax return. The same goes for married people who fall into tax class 4/4.

But things are more complicated this year due to Kurzarbeitergeld.

Anyone who received more than €410 in wage replacement benefits from the state no longer counts as having just one source on income. The state benefits can push people into a higher tax class (more on that later), meaning their income needs to be assessed by the local tax authority.

Normally, this rule applies to people who have been receiving unemployment benefits but have in the course of the year found salaried employment.

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Other people who this affects are pregnant women who have received Mutterschutz payments, parents of young children who make use of parental leave payments (Elterngeld), and people who have been off work sick for sustained period of time (Krankengeld). 

In 2020 though, some six million more workers fell into the category of receiving state aid due to the fact that they received Kurzarbeitergeld during the tough economic times brought about by the pandemic.

Roughly six percent of the workforce went into part-time work (or stopped working completely) in 2020. In order to ward off a surge in unemployment, the state paid up to 60 percent of their salaries.

That means a lot of extra tax returns for the tax authorities to process this year.

The progression clause

Germany’s online tax system. Photo: dpa | Frank Rumpenhorst

The specific reason for why employees who received state benefits need to complete a tax return has something to do with a tax rule called the Progressionsvorbehalt (progression clause).

Essentially, although you do not pay tax on the money received from the state, it counts as part of overall earnings when the tax authority considers what tax bracket you fall into.

In other words, it is added together with your income and that total sum indicates your tax bracket. That tax bracket is then applied to your salaried earnings for the tax year.

In some circumstances this can lead to the tax authority asking you to pay more tax than the amount that was taken off automatically from your monthly pay slip.

The Finance Ministry assures people that demands for back taxes are not a general rule and are highly dependent on the individual worker’s circumstances.

“The receipt of Kurzargbeitergeld does not automatically result in an additional tax payment,” the ministry assures.

“Rather, the concrete tax effects of the progression clause depend on each individual circumstance. These include one’s tax bracket and the amount of income tax paid before the pandemic, the amount of other income subject to taxation, the amount of deductible pension expenses and other deductions.”

Various companies have been set up in recent years that help expats complete their tax forms online in English.

Or, if you want peace of mind, it might be worth asking a tax adviser to do it for you.

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For members

TAXES

EXPLAINED: How to save money on your taxes in Germany

Einkommensteuererklärung - or income tax declaration - may well be one of the most terrifying words in the German language. But with several available deductions, you may want to file even if you don’t have to. We spoke to experts to find out how to do it.

EXPLAINED: How to save money on your taxes in Germany

In a crowded field, few things feel as bureaucratic in Germany as the tax code. But as with so many things here, there’s an advantage in planning a bit ahead of time, and keeping the right paperwork as you go along. From my own personal experience having paid tax in Canada before moving to Germany, many of the possible deductions you can get here might not be available where you’re originally from. That’s why it’s worth checking to see what you can save money on.

It’s currently tax season: the 2020 tax return deadline for those who use an adviser or Steuerberater is May 31st 2022 (it was extended from December 31st 2021 due to the pandemic). Meanwhile, many residents in Germany will have to file their 2021 tax returns by the end of July, with extensions available to those who use a tax advisor.

And, While some salaried employees with very straightforward cases may be able to get away without filing one as their taxes are often simply deducted straightaway from their monthly pay, it often pays to do it. 

READ ALSO: German tax deadline extended due to Covid pandemic

Who has to complete a tax return in Germany?

Perhaps most obviously, self-employed freelancers and small business owners resident in Germany have to file a German tax return every year. But so do a host of other people. These include married partners with big differences in income, people claiming certain welfare benefits, or people with multiple sources of income – such as those who might have a salary and rental income. If you don’t fall into any of these categories, you can still file a return and get some money back.

A calculator next to a tax return form.

A calculator next to a tax return form. Many people can get money back from submitting a tax return. Photo: picture alliance / dpa | Oliver Berg

What job-related expenses can I deduct and how can I prove them?

It’s not just the self-employed who can claim a host of tax breaks. If you’re a salaried employee, you may also be able to claim everything from job-related clothing to training courses you’ve paid for yourself and not been able to claim as expenses with your employer. If you buy a work-related book or subscribe to a trade magazine your employer doesn’t reimburse you for, you can deduct that from your tax burden as well. The costs of membership in professional organisations are also fair game.

“Any form of job-related development course is tax deductible, whether you’re a freelancer or not,” says Claudia Müller, Founder of the Female Finance Forum and author of Finance, Freedom, Provision. The way to financial independence. “Also, if you had to travel to the course, you can keep the train ticket and hotel receipt. The dates on them will obviously correspond to the course date—so you can clearly prove you took the trip for professional development and claim the travel costs.”

READ ALSO: Everything you need to know about your German tax return in 2022

Müller also advises keeping the receipts for job-related clothing, although claiming that as an expense is easier for some professions than for others. For example, a chef can easily argue their uniform, if they have to pay for it themselves, is something they won’t wear outside of work. Other cases are less straightforward.

“Clothing is a bit tricky because men can theoretically wear a suit to a non-work related occasion, like a wedding. So they won’t be able to hand in those receipts. But women sometimes can deduct certain business clothing they really wouldn’t normally wear outside of work,” says Müller.

With the Covid-19 pandemic having made home office more common in Germany, both employees and freelancers can deduct furniture, computer, stationary, and Internet costs, among others. 

What household-related costs can I deduct?

When I had a dishwasher technician come to my home for a repair recently, he told me I’d be getting a long receipt via email and that I should save it for my tax return. Having had no such available tax credit when I lived in Canada, I was curious about what else might qualify. It turns out plenty does – whether you rent or own the place you live in.

“As long as you’re using a cashless payment, such as a wire transfer, you can claim some of the costs of household-related services like gardeners and cleaners – or maintenance costs such as home repairs or a visit from your chimney sweeper,” says Dirk Maskow, an independent tax consultant based in both Berlin and Düsseldorf.

A man places dishes inside a dishwasher.

A man places dishes inside a dishwasher. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

“If you rent your place and your landlord passes on any service costs to you, the tenant, they’re obliged to provide you with the necessary statement, which you can use as documentation.”

READ ALSO: Everything you need to know about paying taxes in Germany

What family-related costs can I deduct?

Germany is a country that prides itself on its family-oriented social safety net. That’s part of what makes its tax code so complex, but there’s plenty of possible credits for different life situations. Parents can claim an allowance for each child until they turn 25, and even longer if they can prove their enrolment in higher education for adult children older than 25 – even if they’re living away from home.

Two-thirds of childcare costs are tax deductible too. “For that, again, make sure you keep all the receipts and don’t pay by cash—so you can prove exactly what you paid and when,” says Maskow. “Public schools are of course free in Germany, but even about 30 percent of private school fees – up to a maximum of €5,000 – are tax deductible too.”

It’s not just institutional education or childcare you can claim either. In Germany, even certain babysitting expenses are tax deductible. “You can even get the children’s grandparents to come over and deduct travel costs,” says Müller. “If they need to take the train to come look after the kids, make sure you save the receipt.”

Certain out of pocket healthcare costs might also be tax deductible in certain cases. “My tax advisor always asks me for our medical expenses, right down to if we went to the dentist and got a cleaning,” says Kathleen Parker, Managing Director of Red Tape Translation. “The right filing system can make a load of difference to help keep track of it all. If Excel and paper isn’t cutting it anymore, there’s lots of great cloud-based software that can help you out.”

Vocabulary

Tax – (die) Steuer

Wage Tax (what employees have taken off their pay) – (die) Lohnsteuer

Tax return or tax declaration – (die) Einkommensteuererklärung

Tax consultant or advisor – (der) Steuerberater/(die) Steuerberaterin

As with all of our tax and financial summaries, this is a guide only and should not be taken to constitute specific and tailored financial advice. For tax advice which is personalised to your situation, please contact an accountant or tax specialist. 

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