Tax reliefs 2022: An overview of the tax relief act

The Bundesrat approves the 2022 Tax Relief Act

The Corona pandemic, Russia’s attacks on Ukraine, delayed supply chains, rising energy prices, high inflation – the consequences of these events have also led to a noticeable difference in your wallet. As of Friday, May 20th, it’s official: The Bundesrat, the upper house of the German parliament, gave the green light for comprehensive tax relief from the German government. Two tax relief packages were put together to help ease the burden on German residents. Among other things, the following have been approved:

• The draft of the 2022 Tax Relief Act
• The Immediate Surcharge and One-Time Payment Act (Sofortszuschlags- & Einmalzahlungsgesetz)
• The Energy Tax Reduction Act

First relief package

The first relief package from the German government was passed in spring 2022 due to rising energy costs. This package includes the heating cost subsidy (Heizkostenzuschuss) and the elimination of the EEG surcharge (EEG-Umlage). This has been supplemented by a higher basic tax-free allowance (Grundfreibetrag), an increase in the income-related expenses lump sum (Werbungskostenpauschale), and an increased commuter allowance (Entfernungspauschale).

Heating cost subsidy (Heizkostenzuschuss)

Anyone who received at least one month of housing allowance (Wohngeld) between October 2021 and March 2022 will receive a one-time heating subsidy of 270 euros (350 euros for 2 persons entitled to housing allowance in the same household, 70 euros for each additional person). Students and trainees who no longer live at home and receive BAföG, education allowances, education subsidies, or dependent subsidies can also receive a heating subsidy of 230 euros. Depending on the federal state, the heating cost subsidy will be paid out automatically between June and October 2022.

EEG Surcharge

Electricity customers will no longer be subject to the EEG surcharge as of July 1st, 2022 – half a year earlier than originally planned. This means a saving of €3.72 per kilowatt hour. Electricity providers are legally obliged to pass on the savings to their consumers. Tip: Tell your provider your meter reading starting from the deadline!

Increased income-related expenses lump sum

The income-related expenses lump sum (Werbungskostenpauschale / Arbeitnehmer-Pauschbetrag) will increase retroactively to January 1st, 2022 from 1,000 euros to 1,200 euros per year. This lump sum is automatically deducted from your taxable income when you file your tax return.

Increase in the basic tax-free allowance

The basic tax-free allowance (Grundfreibetrag) will also increase retroactively from January 1st, 2022. The increase raises the allowance by 363 euros, from 9,984 euros to 10,347 euros. This is beneficial as tax is only due on income earned above this basic amount.

Commuter allowance increase

The commuter allowance (Pendlerpauschale) was increased retroactively to January 1st, 2022: You can deduct 38 cents per kilometer from the 21st kilometer of a one-way commute. This allowance was previously 35 cents per kilometer from the 21st kilometer and an increase was originally planned for 2024 – this increase was bumped up by 2 years to help relieve taxpayers. The mobility premium (Mobilitätsprämie) will also increase accordingly. An allowance of 30 cents per kilometer for the first 20 kilometers of your commute still applies. Note: The increase also applies to family trips home in the case of double household management.

What does this all mean for my salary?

The basic tax-free allowance is included in tax classes (Steuerklassen) 1 to 4 and the income-related expenses lump sum in classes 1 to 5. The increase in these allowances has a direct effect on your monthly income tax and, if applicable, your solidarity surcharge and church tax. The relief for those with lower incomes is higher than the relief for those with higher incomes. The increases will be reflected in your pay slips retroactively from January – employers are required to correct the previous payroll tax deduction in 2022 if it’s economically reasonable for them to do so. The tax authorities already announced new program procedures for payroll tax calculation that came into effect on June 1st, 2022. If you recently switched employers, you will receive the tax relief upon submitting your tax return.

What does this mean for salary tax allowances?

Because of the higher commuter allowance, you can adjust your income tax reduction for income-related expenses as of June 2022. As the income-related expenses lump sum was also increased by 200 euros, you must be able to claim over 200 euros more in commuter costs.

If you don’t apply for an adjustment to your tax allowance, you can reclaim the higher commuter allowance in your 2022 tax return.

What does this mean for those in tax class 4 with factor procedure?

If your factor was already formed before the new adjustments, nothing will change for you. It will remain valid until the end of 2023 at the latest, at which time you will have to reapply for and recalculate your factor as it’s only valid for two years. You can then reclaim the tax benefits of the new tax reliefs with your tax return – which is mandatory for those in tax class 4 with factor procedure.

Second relief package

The government’s second tax relief package includes:

• The energy price flat-rate
• A new child bonus
• A tax cut for fuel
• Discounted monthly public transportation tickets
• A one-time payment for recipients of transfer and unemployment benefits (Transferleistungen & ALG 1)
• An immediate supplement payment (Sofortzuschlag) for children

Energy price flat-rate

All employees will receive a one-time energy price flat-rate of 300 euros. Self-employed persons receive this via a reduction in their advance income tax payment (Einkommensteuer-Vorauszahlung). Traditional salaried employees, including those on short-term contracts and working mini-jobs, receive this lump sum in addition to their wages from their employer. In order to receive this, you must be employed on September 1st, 2022 as the payment will be made in September 2022.

This allowance is subject to tax and applies per person, not per employment relationship. Anyone working two jobs in tax class 6 will only receive the energy price flat-rate via their primary employment relationship. Unfortunately, students and retirees will not benefit from this flat-rate. Nevertheless, it’s still recommended to secure the flat-rate by working even a single day during the year – i.e. paid babysitting – however, the tax office may not recognize this as valid employment for the flat-rate. It’s safer to have a mini-job over the course of 2-3 months.

Child bonus

All parents entitled to child benefits (Kindergeld) already received a child bonus (Kinderbonus) of 300 euros per child in 2020 (2021: 150 euros), and a new child bonus of 100 euros is now planned for 2022. The child bonus will be automatically paid out by the family benefits office (Familienkasse) from July 2022 along with child benefits and doesn’t have to be applied for separately.

Tax cuts for fuel

The energy tax reduction to the European minimum in June, July, and August 2022 should reduce the price of gasoline by just under 30 cents/liter and the price of diesel by just under 14 cents/liter. Unfortunately, we now know that this tax cut won’t quite fully reach consumers.

9 euro ticket

Surely you’ve heard of “9 for 90” – from June 2022 until August 2022, you only have to pay 9 euros per month for public transportation nationwide. The monthly ticket is valid on all local and regional buses and trains. Depending on the transport company, subscribers can receive the payment difference by their monthly fee being directly reduced or through a credit, refund, or extension of the validity period.

One-time payment for social and unemployment benefits

Because of the rising cost of living, the 100 euro one-time payment for adult recipients of transfer benefits (Transferleistungen) will be increased to 200 euros. Anyone who, in July 2022, is entitled to benefits under the following will receive an additional supplement of 200 euros. You are not required to apply for this.

• SGB II: Unemployment benefits 2 / Social benefits (Sozialgeld)
• SGB XII: Social assistance (Sozialhilfe)
• The Asylum Seekers’ Benefits Act (Asylbewerberleistungsgesetz)
• Supplementary assistance for subsistence according to the Federal War Victims Relief Act (Bundesversorgungsgesetz)

Recipients of unemployment benefits I (ALG 1) will receive a one-time payment of 100 euros. Anyone entitled to unemployment benefits for at least one day in July 2022 are eligible for this payment. Those entitled to benefits under SGB II (i.e. “top ups”) during this period will receive an increased one-time payment of 200 euros. The payment is expected to be made in August 2022 and no application is required.

Immediate supplement for children

It will likely still take some time for the new basic child benefits (Kindergrundsicherung) to be implemented and as a transitional solution, children and young people up to 25 who are affected by poverty will receive an immediate supplement of 20 euros per month starting from July 2022. In order to receive this, they must live with either one of both of their parents and be entitled to benefits under one of the following:

• The Second or Twelfth Social Code (Sozialgesetzbuch)
• The Asylum Seekers’ Benefits Act (Asylbewerberleistungsgesetz)
• Supplementary assistance to cover living expenses in accordance with the Federal War Victims Relief Act (Bundesversorgungsgesetz)

Families who receive the child supplement (Kinderzuschlag) also receive this supplement, this increases their monthly child supplement to up to 229 euros.

The 4th Corona Tax Assistance Act & Other tax changes in 2022

The Bundestag and Bundesrat passed the 4th Corona Tax Assistance Act (Vierte Corona-Steuerhilfegesetz) in June 2022. It includes the following:

• The tax exemption for employer subsidies (Arbeitgeberzuschüsse) for short-term work benefits (Kurzarbeitergeld) will be extended until then end of June 2022.
• Declining depreciation (degressive Abschreibung) for movable assets is now also possible for investments in 2022.
• Employers in the medical field can pay their employees a tax-free care bonus (Pflegebonus) of 4,500 euros.
• The Home Office Lump Sum was extended until the end of 2022.
• The deadline for 2021 tax returns will be extended by 3 months. The new deadline is October 31st, 2022 or the following business day.