As an Expat in Germany, do I have to file taxes or do I not have to? Is filing taxes mandatory or is it just voluntary? Find out more below why getting control of your taxes helps you with your finances in Germany.
Who has to file taxes in Germany?
In general, if your income is below the so-called basic allowance, you will not pay any taxes and you will not have to file a tax return. In 2020, this basic tax-free allowance was 9,408 euros for singles and 18,816 euros for married or registered partners.
1. Filing taxes in Germany: Workers with tax class I
Are you an employee with tax class I and only have income from your work as an employee? Then you do not have to submit a tax return. This is because your employer already withholds income tax and transfers it to the tax office with the monthly pay slip.
The wage tax is an advance payment on the Income tax in Germany. Your employer takes into account the monthly wage tax deduction
- An employer is familiar with the tax characteristics of his employee, such as tax class, church affiliation and child allowances as well
- pro rata the flat rate for advertising expenses (1,000 euros per year).
If an employee has high deductibles such as advertising expenses and other special costs, then they have paid too much in taxes – and should definitely submit a tax return voluntarily! With the tax return, the exact settlement of all tax-relevant income and expenses for the entire year is carried out – this also includes life issues that are outside of the employment relationship.
2. Filing taxes in Germany: compulsory accessment obligation for employees
The German tax office can also assume that the employee has not paid enough tax due to the wage tax deduction. Then there is the so-called assessment obligation, i.e. the employee is obliged to submit a tax return. The Income Tax Act regulates in Section 46 when exactly this duty applies.
What is a compulsory assessment?
In certain cases, employees are obliged to submit an income tax return without being asked after the end of the calendar year, e. B. if you have applied for tax exemptions from the tax office. Citizens with mandatory tax assessment must observe the deadline for submitting their tax return.
In general: every tax citizen has to find out for himself whether he has to submit an income tax return! The tax office in Germany does not automatically write to all taxpayers and ask you to submit your tax return.
Here are the most important cases in which an employee has to submit a tax return:
|Income tax allowance||Anyone who has an allowance for income tax is subject to tax. Example: You have registered an allowance due to high travel costs or double housekeeping. This excludes registered lump sums for the disabled, surviving dependents or child allowances – or if the total wage earned in 2020 was a maximum of 11,600 euros for a single or 22,050 euros for a couple.|
|Additional income||You had additional income of more than 410 euros a year, including, for example, rental income.|
|Wage replacement benefits||You have received tax-free wage replacement benefits such as unemployment, short-time working, insolvency, sickness, parental or maternity benefits over 410 euros per year.|
|Individual assessment for spouses / civil partners||If one of the partners in a marriage / civil partnership has submitted an individually assessed tax return, the other partner must also submit a tax return.|
|Tax brackets for spouses / life partners||You and your jointly assessed partner have received wages and the tax bracket combination III and V or you have tax bracket IV with factor.|
|Exemptions for children||Unmarried or divorced parents want to divide an exemption for the common child differently than in half; this applies to the training allowance and the lump sum for the disabled.|
|Divorce and remarriage||You got divorced and you or your ex-partner remarried in the same year. The same applies to widows who remarry in the same year.|
|Several employers||You have received salary from several employers at the same time and you have tax class VI.|
|Change of employer / entry “S” in the income tax certificate||You have been employed by more than one employer within a year and “S” is entered on your income tax certificate. This means that your new employer has calculated wage tax for other payments such as Christmas bonuses – without taking into account the previous wages at the old employer.|
|Severance payment||You have received a severance payment and the employer has withheld the wage tax for it according to the “fifth rule”.|
|Investment income||You have investment income for which no final withholding tax has been paid.|
|Loss carryforward – minus from previous years||You had a tax loss from previous years. If, for example, a remaining loss carryforward was determined in the 2019 tax assessment, then a tax return must be submitted for 2020.|
Even if none of the above cases or facts apply to you, the tax office in Germany can ask you to submit an income tax return by post. Then you have to react too – and file a tax taxes. The tax office in Germany always actively writes to the taxpayer if it has received a “control notification” about income that could have a tax impact, for example through inheritance or gift.
Compulsory assessment: observe deadlines
Are you obliged to submit a tax return? Then you have to keep certain deadlines in mind. If you fail to do this, you risk a surcharge for the delay and may have to pay additional interest to the tax office.
The submission deadline for 2021 ends on July 31, 2022. Anyone who does not make it on time can apply for an extension. A longer illness or absence are reasons that are often understood by the tax office.
Tax advisors and income tax relief associations have later submission deadlines: If you have your tax return done by the tax ring, for example, then February 29, 2021 is the deadline for the 2019 return.
3. Filing taxes in Germany: obligation for “non-employees”
For “non-employees” – such as self-employed, tradespeople or farmers – there is a tax obligation if the total amount of income is above the Basic allowance.
For 2020 this is 9,984 euros for an individually assessed taxpayer; 19,968 euros for a married couple assessed together.
These amounts also apply to retirees. However, the pension is partially tax-free. How much depends on when it was first paid. But retirees also have deductible expenses. Only when, after deduction, the taxable income is above the basic allowance, taxes actually have to be paid.
4. Filing taxes: Voluntary tax return through the Application assessment
For many employees, the tax liability is already settled by the monthly wage tax deduction. If you have no further income, you do not need to submit a tax return in these cases.
What is an Application Assessment?
The application assessment according to § 46 Abs. 2 Nr. 8 EStG gives the employee, who is not already obliged for other reasons to submit an income tax return, the possibility to do so voluntarily in order to file taxes to claim expenses outside of the wage tax procedure.
Anyone who is not legally obliged to submit a tax return (compulsory assessment) can have themselves assessed voluntarily. This can be worthwhile for many employees, as a tax refund can usually be expected. The regular submission deadlines do not apply to the application assessment – the voluntary tax return can still be submitted 4 years after the end of the tax year.
However, this can be done voluntarily – in Germany, you have 4 years to do this. You can submit a voluntary tax return for 2020 by December 31, 2024 at the latest. An extension is with the so-called Application assessment not possible.
For whom is a voluntary tax return worthwhile?
As an employee in Germany, you pay taxes with the income tax – which your employer withholds directly from your salary and transfers it to the tax office. This is an advance payment on the Income tax. In many cases, the wage tax is so high that actually no tax declaration is required.
The tax authorities in Germany divide taxpayers in such a case into two groups:
- those who have to submit a tax return (mandatory assessment)
- those who can voluntarily submit a tax return (application assessment)
You should consider voluntarily filing taxes in Germany if you fall under the following categories:
|Only temporarily employed||If you only worked part of the year, for example as a young professional, you have a good chance of getting a tax refund. Because: The exemptions and lump sums applicable for one year were only taken into account pro rata in the wage taxation by the employer.|
|Double earners with tax class IV||If both spouses have earned money with income tax class IV (no factor!) in previous year, a voluntary tax return will in many cases result in a refund.|
|Marriage||Even if you got married in the previous year, a tax return can be worthwhile. Most tax exemptions and lump sums are doubled if they are assessed together. You can benefit from this! The advantage is particularly great if the income of the newlyweds is different or one of the spouses had no income of their own at all, for example due to a degree.|
|Birth of a childParents are responsible for each child’s allowance. The birth of a child is electronically registered by the registration offices in the ELStAM database. However, when the employer deducts income tax, the children are only taken into account when calculating the surcharge taxes (solidarity surcharge and church tax). |
If you now decide to file a tax return, a reduced-rate test is carried out: It is checked whether the allowances for children lead to a higher tax advantage than the one received with Child benefit. There is an additional tax advantage for high-earning parents.
|High business expenses||When deducting income tax, the employer takes into account the employee lump sum of 1,000 euros per year. For example, if you live 15 kilometers away from your workplace and have a five-day work week, the travel expenses already exceed the flat-rate for advertising expenses: 230 days x 15 km x 0.30 euros = 1,035 euros. Then every additional euro in advertising costs counts and reduces the tax burden.|
Advertising costs include, for example:
• own costs for further education
• Travel expenses to work
• a second apartment for work purposes
• home office space
• professional telephone costs
• Contributions to professional associations, e.g. Unions
• professional relocation costs
• External activities
• Account management fees for the salary account (will be recognized as a flat rate of 16 euros without proof)
• Expenses for work equipment such as work clothing or the depreciation of a privately purchased but professionally used computer
|Higher insurance costs and other special|
|When calculating your payroll, the employer takes your social security contributions into account with an individually calculated, flat-rate value (flat-rate pension). You can claim the contributions you actually paid for pension, health, long-term care and unemployment insurance as well as for privately concluded insurance contracts in the “Pension expense annex” on your tax return. Good to know: An additional basic pension (Rürup pension) always leads to tax savings.|
For the other special editions, the flat rate is only 36 euros. Anyone who has paid church tax or made donations, for example, can state this in the tax return.
Further examples of special editions are:
• Care costs for your children up to 14 years of age, including the fees for the kindergarten or childcare
• School fees for your children’s private school
• Pension contributions for a Riester contract
• Training costs for initial training such as a bachelor’s degree