What are income-related expenses (Werbungskosten)?
Income-related expenses are expenses that are incurred for professional reasons – these are among the most important deductions you can declare on your tax return (Steuererklärung). These expenses can include, but are not limited to: professional literature, travel costs to a job interview, moving for a new job, commuter costs, work clothes, work equipment for your home office, business trip costs, professional insurance costs, costs for courses to advance your professional knowledge, and the list goes on.
Section 9 of the Income Tax Act (EStG) states that income-related expenses are “expenses incurred to acquire, secure, and maintain income. They are to be deducted from the type of income for which they were incurred.” This means that expenses are deducted from employee wages when determining their taxes and thus reduces their tax burden.
Income-related expenses lump sum
You can declare your professional expenses from non-independent work individually on Form N (Anlage N) of your tax return and prove them with receipts – so don’t throw them out! If your income-related expenses don’t exceed 1,000 per year, you don’t need to provide any proof. In order to keep processing times at a minimum, the tax office (Finanzamt) includes an automatic income-related expenses lump sum (amounting to 1,000 euros since 2011) for each employee. This is called Werbungskostenpauschale in German, or more officially, Arbeitnehmer-Pauschbetrag.
You have a legal claim to the full lump sum amount, meaning that even if you only worked part of the year or had minor expenses, the tax office will still deduct the full 1,000 euros from your income.
Each month, when your employer deducts your wage tax from your salary, the lump sum is already proportionately observed; therefore, if you’ve only worked for a part of the year, it’s important to file a tax return so you can benefit from the entire lump sum amount.
Taxpayers are only entitled to one income-related expenses lump sum per year. If you have more than one job, you can’t claim the lump sum multiple times. If you have two jobs with the same type of income (i.e. two non-freelancing positions), you can either claim the full lump sum of 1,000 euros or declare your income-related expenses individually (if your expenses from both jobs together exceed the lump sum amount) and have the tax office review these to reduce your tax burden. If you choose the second option, you will need to provide proof of your expenses.
If you have two jobs and one is a freelancing position, your expenses are divided into two sections: income-related expenses for your traditional position and business expenses (Betriebsausgaben) for your self-employment.
Examples of income-related expenses
- Work equipment that is used at least 90% of the time for professional purposes is fully tax-deductible. This can include work clothes, office supplies, office equipment, technical literature, etc.
- Job application expenses
- Business trips
- Double household expenses: if you have a second residence for work-related reasons, up to 1,000 euros per month can be deducted in accommodation costs. In addition, moving expenses, furnishings, and costs for trips home to see family can be deducted.
- Commuting expenses: For many taxpayers, commuting costs make up a large part of their income-related expenses. The commuter allowance (Pendlerpauschale) allows a flat rate of 30 cents per kilometer traveled between your (primary) job and home each day – either to or from – to be deducted. This applies for all types of travel, including by car, bike, public transportation, etc. As of January 1st, 2021, commuters can deduct 35 cents from the 21st kilometer traveled in a one-way trip. The maximum amount that can be deducted in commuter expenses amounts to 4,500 euros. You can deduct more than the maximum amount in certain situations, for example if you drive your own car or a company car for professional reasons that leads to higher expenses, if public transport costs exceed the maximum, or if you have to commute further due to having a second home (double household) for professional purposes (or back and forth between your primary & secondary residence).
- Work room in your home (häusliches Arbeitszimmer): If you have a room in your home that is dedicated to professional activities, you can claim up to 1,250 euros in expenses for it. Freelancers can claim an unlimited amount as business expenses.
- Home office lump sum (Home-Office-Pauschale): With this new lump sum, you can claim a flat rate of 5 euros for each day spent working remotely.
- Account maintenance fees: an annual flat rate of 16 euros for account maintenance fees can be deducted.
- Membership fees for professional associations and trade unions
- Telephone and internet costs
- Moving costs for work-related moves
- Costs for further education, training, retraining, second studies, and second vocational training
Note: In this article you can learn more about professional expenses that can be deducted from your taxes.
Those working mini-jobs are not permitted to claim the income-related expenses lump sums. Employers of mini-jobs positions with wages up to 450 euros per month pay a flat rate of 2% wage tax to the tax office. Flat-rate taxation is not paid by the employee, but from their employer; therefore, the wages earned by those in marginal employment are completely tax free and don’t play a role in their tax return. Unfortunately, this also means that no income-related expenses can be deducted.
Retirees and pensioners
Retirees can claim income-related expenses that occur because of their pensions or retirement funds.
An annual income-related expenses lump sum of 102 euros is automatically deducted from the taxable portion of pensions – this also applies to the retirement payments made by pensioners or company pensioners (Betriebsrentner). As this lump sum is an annual amount, those who retired during the year are still entitled to it. If your expenses exceed the 102-euro limit, they can be declared in Form R (pensions and other retirement benefits) and deducted in full. Income-related expenses for pensioners and retirees can include:
- Legal advice and litigation costs that have to do with your pension or retirement benefits
- Pension and insurance consulting
- Tax consultation costs for your pension income/payments
- Telephone and travel expenses for the above items
- Contributions to trade unions (Gewerkschaften) and professional associations (Berufsverbände)
The income-related expenses lump sum amount for pensions and for pension payments is the same – but if you receive additional retirement benefits separate from your pension, 102 euros can be claimed for each one in your tax return.
If you receive both pension payments (e.g. from a company pension) and wages from an active profession, both the income-related expenses lump sum for employees and the lump sum for pension payments can be claimed.