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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.

Cash next to an income tax return in Straubing (Lower Bavaria).
Cash next to an income tax return in Straubing (Lower Bavaria). Photo: picture alliance / dpa | Armin Weigel

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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For members

ENERGY

Who gets Germany’s €300 energy relief payout – and when?

As part of a package to ease the rising cost of living, the German government is set to give taxpayers in employment a one-off payout. Here's what we know so far.

Who gets Germany's €300 energy relief payout - and when?

Germany has approved a special package to provide financial relief to people during the cost of living crisis. 

Among the measures in the Tax Relief Act is a €300 allowance known as the Energiepreispauschale or EEP in Germany, which employers will have to pay out to their staff later this year. Self-employed people will also receive it. However, the payment is taxed for everyone who receives it. 

It is aimed at providing financial relief to workers in Germany dealing with soaring energy bills. 

READ ALSO: KEY POINTS- What Germany’s budget means for you

Which employees receive the payout?

All employees in tax brackets one to five who are in employment in 2022, as well as people in marginal and short-term employment (i.e. people with mini jobs and temp work) who pay flat-rate tax on their wages, will get the cash boost.

“Marginal or short-term employees must confirm in writing to the employer that the marginal employment is their first employment relationship,” Ecovis tax consultant Magdalena Glück, who’s based in Dingolfing, told trade site Handwerksblatt.

This prevents the energy price lump sum from being paid out twice. All those who were employed as workers at some point in 2022 will receive the €300, whether it’s through their employers or an income tax assessment. 

The SPD (Social Democrats) parliamentary group in the Bundestag said “44 million working people will be relieved quickly and unbureaucratically” through the payment. 

When and how do employers pay out the lump sum?

Employees should receive the cash boost with their September wages. For this purpose, the employer will add an “E” on the pay slip certificate detailing the amount. 

“If employers do not pay the wage tax monthly – but quarterly instead – the energy price lump sum can also be paid out in October,” said Glück.

The lump sum is free of social security contributions – but it will be subject to tax for most people. “For mini-jobs taxed at a flat rate, the €300 is tax-free,” said Glück. 

A woman turns down a radiator in Germany.

Energy prices have been significantly rising in Germany. Photo: picture alliance/dpa | Marcus Brandt

Glück added that it was extra bureaucracy for employers.

“Many citizens will be happy about the money. But for employers, the energy price lump sum is additional work,” she said.

Do self-employed people also get the lump sum and if so, how?

As well as employees, freelancers tradespeople and other self-employed workers also receive the lump sum. For them, the payout is considered other income – but the exemption limit of €256 is not applied.

They receive the lump sum by reducing their advanced income tax payment in September, provided the advance payment reaches the amount of the lump sum. 

Employees who are not in employment on September 1st and self-employed people with low advance payments are granted the flat-rate energy allowance via their income tax return without submitting a separate application.

“If no advance payment is made, the amount can only be taken into account in the income tax assessment,” said Glück. “This happens automatically,” she added.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

What about people who’ve retired?

Pensioners who are not in employment in 2022 are not entitled to the payout. However, according to reports in German media, if they work for a short time in 2022 – even if that’s a one-day mini-job – they are entitled to the payment.

CDU financial expert Antje Tillmann even recommended a special trick to try, 

“It is sufficient, for example, for a pensioner to look after his grandchild for one hour in 2022 and receive €12 minimum wage from his children in return as part of a mini-job or from self-employment,” said Tillmann told German daily Bild. “Subsequently, he declares this income in his tax return, gets the energy price lump sum paid out in May 2023.”

Tillmann recommended that the “salary” be paid out via a bank transfer so that it can be presented as a mini-job.

We’d recommend you chat to an expert such as a tax consultant to see your options. 

How much of the €300 will people actually receive?

“That varies from person to person, because the EEP is subject to the personal income tax rate,” said Glück.

It means that people with a low income will have to pay little or no tax at all, while those with a high income will receive less of the payment. 

The payout has been designed that way on purpose. “Since taxation increases with income, a social design for the flat rate is achieved,” said the SPD in a press release

Some cash and an EC card.

Some cash and an EC card. Photo:
picture alliance/dpa | Arne Dedert

The German government expects additional tax revenue from the energy price flat rate of €3.4 billion. On average, people who get it will be left with around €226.

As well as income tax, surcharge taxes such as church tax and the solidarity surcharge may further reduce the lump sum in some cases.

As we mentioned above, people who have mini-jobs who are taxed at a flat rate should be happy: for reasons of simplification, lawmakers have decided to waive taxation here.

How do employers get their money back from the government?

The energy price flat rate is offset against tax.

“The employer therefore simply pays less wage tax to the tax office,” said Glück. “If employers have to pay out more EEP to employees than they pay in wage tax, they get the difference from the tax office.”

What other payouts are people receiving?

As well as the €300 payout, families will receive a one-off Kinderbonus of €100 per child this year. The bonus will be paid out with the child benefit payment in July.

There will also be a €200 payout for people on social welfare, and €100 for people on the unemployment benefit Arbeitslosengeld I.

Meanwhile, a €270 heating cost allowance for people on housing benefit, and €230 for students receiving state support (BAfög) is also planned.

In total, the law provides around €4.46 billion of financial relief for people in Germany this year.

READ ALSO: Why people in Germany have longer for their tax return this year

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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