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Taxes For Members

EXPLAINED: The top tax deductions often overlooked by employees in Germany

Rachel Stern
Rachel Stern - [email protected]
EXPLAINED: The top tax deductions often overlooked by employees in Germany
A Steuererklärung - or German tax return - on a typewriter. Photo: Markus Winkler on Unsplash

Employees in Germany aren't required to file an income tax return - but it's recommended they do as the average filer gets €1,000 back. Here are our top tips to get the most bang for your euro.

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Employees in Germany pay income tax every month - without having to pay it themselves. That's because employers automatically deduct the monthly amount that their Mitarbeiter (employees) owe straight from their paycheck.

However, the Arbeitgeber (employer) doesn't usually take the employees' daily tax-deductible expenses  - ranging from transport to childcare - into account.

It is therefore all the more important for employees to take stock after the end of a year with their tax return and to let the Steueramt (tax office) know which tax deductible expenses have been incurred. 

It's worth noting that any employee with extra income - for example renting out a property or taking on a freelance gig or two - always has to file taxes by the yearly deadline. This year, the deadline is September 30th for people who don't use a tax consultant, and July 31st, 2024 for people who do. 

But employees who just receive income from their employer have up to four years after this deadline to claim back expenses.

READ ALSO: What you need to know about Germany’s extended tax filing deadlines

Married couples/domestic partners 

Those who marry or register a civil partnership can benefit from the so-called Ehegattensplitting (spousal splitting) for the first time in that same tax year. In most cases, this reduces the tax burden, according to Germany's Taxpayers' Association.

Partners file a joint tax return and choose a joint assessment. The tax office adds the partners' incomes to a total income and divides it by two. Half of the total income is then used to calculate the tax burden, which is then simply doubled. 

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The greater the difference in income between the partners, the more likely it is that joint assessment is worthwhile, Florian Machnow of the tax start-up Taxfix told broadcaster NDR. If both earn the same amount, however, the tax burden does not change.

Taking up a job during the year

Whether unemployed, on sabbatical or entering the workforce for the first time, for example after graduation from uni: those who were only employed for part of the year can most often count on a sizable tax refund.

The reason for this, according to the Taxpayers' Association, is that the monthly payment of wages is based on the assumption that those wages will be paid for the entire year - and the tax paid is correspondingly high. 

However, if you only receive a salary for part of the year, you will have a much lower annual income - and thus a lower tax burden than assumed by an employer.

German Elster tax platform

The German Elster tax platform. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

Expenses for childcare

If you have children, you can deduct childcare costs - such as Kita (daycare) fees or school fees - from your tax return. As Munich-based expat tax advisor Thomas Zitzelsberger previously told The Local, two-thirds of the costs can be deducted as special expenses, up to a maximum of €4,000 per child.

READ ALSO: EXPLAINED: The tax cuts foreign parents in Germany need to know about

Long journeys to work

Taxpayers who have to travel long distances to work can claim these for tax purposes. For the first 20 kilometres, 30 cents each can be claimed as a lump sum. From the 21st kilometre onwards, they can even get 38 cents each - regardless of whether you travel by bike, car or train.

High expenses for professional activity

The Taxpayers' Association (Bund der Steuerzahler) advises that anyone who makes expensive purchases for job-related reasons, or attends training courses that are not paid for by their employer, can deduct the expenses as income-related expenses. 

Working in a 'home office' can also increase income-related expenses. For each day of working from home, taxpayers can deduct a lump sum of €6, up to a maximum of 210 days - or €1,260 per year.

READ ALSO: Germany to extend (and increase) tax rebate of people working from home

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High ‘special payment’ (Sonderzahlung)

Whether it is a bonus for good work or severance pay for the early termination of an employment contract: one-off special payments can lead to a particularly high amount of income tax to be deducted by the employer - and often too much. If you file a tax return, you can get back the extra tax you paid on them.

Job-related move

Moving house for a new job? If you start a new position in another city, or return to a job after a posting abroad, you can include the costs of the move in your tax return.

But it's not just the relocation itself that needs to be taken into account. You can also deduct travel expenses incurred in order to view flats, pay estate agents or even make double rent payments. Just make sure you document all of the costs.  

Costs directly related to the move, such as the renovation of the old flat, re-registration and the professional installation of lamps, can also be taken into account with the so-called flat rate for moving costs, wrote the advice portal "Finanztip". Taxpayers can deduct up to €886 in their tax return - and if a spouse or partner, unmarried children, stepchildren or foster children also move, there is an additional €590 per person on top.

A piggy bank

A German piggy bank with euro notes. Photo: picture alliance/dpa/dpa-Zentralbild | Patrick Pleul

Paid church tax

"Anyone who is a member of a church in Germany has to pay up to nine percent church tax," said Machnow from Taxfix. "The good thing is that it can be deducted." 

For tax purposes, church tax is treated just like a donation and entered under special expenses. 

Energy relief payment not received

Taxpayers who did not receive the energy relief payment of €300 in to help with energy expenses in 2022 can get the money via the tax return. 

The tax office will automatically take the lump sum into account when it is submitted.

READ ALSO: What you need to know about Germany’s €300 energy relief payment 

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High extraordinary burdens due to illness

Whether medical expenses, expenses for prescription drugs or the required wheelchair: "If taxpayers have incurred a particularly large amount of expenses for their own medical costs in one year, this can have a tax-reducing effect," said the Taxpayers' Association. The costs are entered under extraordinary burdens.

The prerequisite is that medical expenses exceed the reasonable burden limit. This depends on income, marital status and the number of children.

Capital gains

Have you sold any securities at a profit this tax year and received dividends? Then you could be eligible for a tax refund. If a taxpayer has paid 25 percent final withholding tax on capital gains, although their marginal tax rate is below 25 percent, he or she can have the difference refunded by the Steueramt.

According to the Taxpayers' Association, this mainly affects low-income earners, pensioners and students.

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Craftsmen's services or energy-efficient building renovations

If craftsmen carry out work within your own four walls, it can be expensive at first. But the expenses can reduce the tax burden, wrote Finanztip. Twenty percent of the labour costs, but no more than €1,200, can be deducted. To do this, the total invoice amount needs to be entered in the annex "Household-related services".

According to Finanztip, the tax savings can be significantly higher if the owner-occupied property is renovated. In this case, too, 20 percent of the costs can be deducted, up to a maximum of €40,000. For this purpose, the annex "Energy measures" (Energetische Maßnahmen) has to be filled out on your tax return. The prerequisite is, for example, that no state subsidy was claimed in order to carry out the work.

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