Article grants are exempt from income tax

Tax liability after a pension increase - this is how you save money

First the joy, then the rude awakening for pensioners in Germany. With the increase in pension values, many senior citizens become taxable for the first time each year. But they can get some of the money back from the Treasury.

Millions of pensioners in Germany look forward to an increase in their pension every year. But with the increase in earnings, more and more retirees are also subject to new taxation.

Pension taxation is based on the Retirement Income Act, which came into force in 2005. This defines the percentage limits for tax liability and thus also the highest annual gross pension that remains tax-free.

Danger: If the tax office has reason to believe that your income is above the basic allowance for pensioners, it can ask you to submit a tax return - even retrospectively up to 2005.

When pensioners have to file a tax return

Basically: "An income tax return is required whenever the total amount of income of a pensioner who has not received any income subject to wage tax deduction exceeds the annual basic allowance," explains the Federal Ministry of Finance.

  • For 2019, the basic tax-free allowance is 9,168 euros and for couples it is 18,336 euros.
  • For 2020, the tax-free subsistence level will increase to 9,408 euros for singles and 18,816 for couples.

When it comes to taxing retirement income, it is not only the amount of the pension that matters, but also when the person concerned retired. According to the Retirement Income Act, pensions have become more taxable for every age group since 2005. Those who retired in 2005 will still receive half of the pension they were drawing tax-free. 78 percent will have to be taxed for 2018 and 80 percent for 2020.

Info: The so-called downstream pension taxation has been in force since 2005. Which portion of the pension is taxed depends on the year in which the pension commences. For retirees who retired in 2005 or earlier, 50 percent of the initial retirement income is set as a tax-free amount. For new retirees in 2019, only 22 percent remain tax-free. From 2040 the statutory pensions will then be fully taxed.

Anyone who retires in 2019 for the first time, may draw a maximum of 13,758 euros old-age pension without having to pay taxes, according to the BMF. This corresponds to a gross monthly pension of EUR 1,125 from January to June and EUR 1,168 after the pension increase on July 1st. Twice this applies to married couples.

The information applies if only health and long-term care insurance contributions are taken into account as expenses. If additional income is added, such as a company pension or private pension insurance, you have to recalculate again. If you are unsure whether you have to file an income tax return, you should seek help, for example from an income tax aid association or a tax advisor.

Do not forget: Pensioners are also obliged to bring them to the tax office. If your income is below the tax-free subsistence level, you can be exempt from filing your tax return.

Completion aid - Free pension insurance certificate

Seniors do not have to laboriously collect their income. At least there is help with pensions: the pension insurance company can issue pensioners with free certificates to help them fill out the tax forms. These papers contain all relevant amounts with information on the lines of these forms in which the values ​​must be entered.

Retirees look at their laptops: retirement does not protect against work or paperwork. Because more and more retirees have to file their tax returns. (Source: Rawpixel Ltd / Getty Images)

Tax return for pensioners with investment income - saver lump sum

If the basic tax-free allowance of 9,168 euros (18,336 for married couples) for 2019 or 9,408 euros (18,816 euros for married couples) in 2020 is not exceeded, you have the option of exempting capital income from the withholding tax by contacting the responsible tax office Apply for a non-assessment certificate. However, this only applies to capital income that exceeds the saver lump sum of 801 euros (1,602 for married couples).

If there is no further taxable income, you can have capital income paid out tax-free up to a limit of 9,837 euros (19,674 euros for married people for the tax year 2018) or 10,005 euros (20,010 euros for married people for the tax year 2019). This amount results from the basic tax allowance for the year, the saver lump sum (801 euros) and the special expenses lump sum (36 euros).

If your income from capital income is lower than the 801 euros set with the saver lump sum, it is sufficient to submit an exemption order to the tax office. In general, no withholding tax is due for income below this limit.

Save money with advertising expenses

In the case of business expenses, the tax office automatically recognizes a flat rate of 102 euros for retirees. You therefore do not need to claim this separately. If the advertising costs are higher, then it is definitely worthwhile to show them with receipts.

What many don't know is that if you use a pension advisor, you can claim these expenses. Retirees also benefit from tax allowances such as the retirement benefit.

So you always have the opportunity to save money, because an entry in the corresponding lines of the tax return cannot lead to negative income.

Claim health and long-term care insurance contributions for tax purposes

According to the taxpayers' association, a maximum of EUR 2,901 for an unmarried pensioner and EUR 5,802 for married pensioners could be recognized for tax purposes in 2017, provided that there are no higher contributions to health and long-term care insurance.

Older couple throws money into the piggy bank: Even in old age, many have to file a tax return. However, retirees can also deduct many costs. (Source: Andrey Popov / Getty Images)

Special expenses and extraordinary expenses are deductible

Pensioners can also save money on tax returns with special expenses and extraordinary burdens. For example, the costs for private liability insurance can be deducted as well as donations of any kind but also the church tax. If you employ domestic help or a nursing service, these costs can also have a tax-reducing effect.

Another area is expenses for spa treatments, medical treatment, medical aids and medication that your health insurance company does not cover. You should note that you have to pay a reasonable personal contribution here, which is based on your income and marital status. So: Collect receipts for glasses, dentures, medication, cures or walking aids over the year.

The purchase of glasses or the medically required trip to a relative who has been in the hospital for a long time can be worthwhile and can be claimed in the tax return for pensioners. The amount is 30 cents per kilometer.

Seniors with health restrictions can also claim the handicapped lump sum, which is between 310 and 3,700 euros. The prerequisite is that you have a severely disabled person's pass or a corresponding certificate.

Retirement abroad: As a rule, retirees abroad who receive pension or pension benefits are taxable in Germany. There are exceptions, however. (Source: Jacob Ammentorp Lund / Getty Images)

Tax liability when residing abroad?

Basically, recipients of pensions or benefits are taxable in Germany, even if they are domiciled abroad. But: There are also individual regulations that can be found in the respective double taxation agreement (DTA) between Germany and the foreign residence. For example, foreign pensioners in Switzerland, the USA and the holiday destinations Portugal and Spain are not subject to German tax liability.

When does the deadline for filing the tax return end?

The deadline for submitting the tax return for one year ends on July 31 of the following year, also for pensioners. The submission deadline can be extended upon application to the tax office. If you seek help from an income tax association or hire a tax advisor, the deadline is automatically extended from the end of May to February 28 of the following year - February 29 for a leap year. If the submission date falls on a weekend, the next statutory working day is the deadline.

If you are not required to submit a tax return, but do so voluntarily due to expected tax refunds, you can take four years to submit it. That can be worthwhile: Because the interest for both a tax back payment to the tax office and a tax refund by the tax authorities is six percent, which you can then claim on the repayment amount for this period.

Important: Anyone who initially did not have to pay taxes - i.e. benefited from a tax exemption - should not sit back and relax. Because pension increases or widow's pensions, which are now drawn after the death of the partner, may, under certain circumstances, later become taxable.