Since the start of the Corona pandemic, our lives have been turned upside down. The German government introduced the Corona Tax Aid Act (Corona-Steuerhilfegesetz) and Social Protection Measures (Sozialschutz-Pakete) to help financially relieve people and keep them from losing their jobs. The Annual Tax Act 2020 (Jahressteuergesetz 2020) provides several tax reliefs to those affected by the hardships of the Covid-19 Crisis.
In this article, we’ll explain what has changed in the 2020 tax year what you should keep an eye on. The better informed you are, the more taxes you can save!
Those required to file a tax return must submit it by July 31st of the following year. There are late filing surcharges if the deadline is missed (Verspätungszuschlag). As July 31st, 2021 falls on a Saturday, the deadline for the 2020 tax return is extended to August 2nd, 2021.
Those who file their tax returns voluntarily can file until December 31st, 4 years after the tax year. For example, a voluntary 2020 tax return isn’t due until the end of 2024 - so there’s plenty of time - but the sooner you file, the sooner you find out what your tax refund will be.
According to the Federal Statistical Office, there is an average tax refund of 1,051 euros for voluntarily tax returns.
When am I required to file a tax return?
If you received wage replacement benefits (Lohnersatzleistungen) such as more than 410 euros in short-term work benefits (Kurzarbeitergeld), unemployment benefits (Arbeitslosengeld), or parental/maternity benefits (Eltern-/Mutterschaftsgeld) in 2020, you are required to file a tax return. These types of benefits are subject to the so-called Progressionsvorbehalt which can lead to an increased tax rate and higher tax payments. Luckily, we can offer you tons of information on deductible expenses that can help to reduce that burden. There are more than you think!
Other factors that can lead to a mandatory tax return include a taxable second job or being in income tax classes 3/5 or 4 with factoration. You can find a list of all compulsory tax assessments here.
Consequences of short-term work (Kurzarbeit)
Many employees are required to submit a 2020 tax return due to being on short-term work because of the Corona crisis.
Employees receiving short-term work benefits receive 60% percent of their lost net wages, those with children receive 67%. Because of Corona, a temporary regulation was introduced that allows employees with more than 50% of lost work to receive:
- 70% (77% with children) of their lost wages from the 4th month receiving benefits
- 80% (87% with children) from the 7th month
The temporary also increased the period one can receive these benefits from 12 months to 24 months, but no later than December 31st, 2021.
Note: If you are married and still on short-term work in 2021 (or again), you can increase your short-term work benefits by changing your tax class: Tax class 3 has the least amount of tax deductions throughout the year. More importantly, tax classes 3 and 4 include a tax-free child allowance (Kinderfreibetrag), ensuring that parents automatically receive 7% more in short-term work benefits. Alternatively, you can request a certificate from the Agentur für Arbeit confirming that you have a child or you can give your employer a copy of your spouse’s income tax statement which includes the tax-free child allowance. You can change your tax class several times a year (since January 2020). If you change your tax class, it takes effect in the following month. Don´t worry: Even if you haven´t chosen the best tax class combination, you won´t be paying more taxes in the end - the final settlement comes with your tax return.
For some tax payers, short-term work benefits can lead to financial difficulties, which is why the regulations for additional income whilst receiving short-term work benefits is constantly changing. Generally, if you had a side job before receiving short-term work benefits you can keep the additional income without a it being deducted from your benefits. System-relevant second occupations had no benefit deductions in April 2020, and as of May 2020, all occupational activities are treated the same.
Note: Your side job income in 2021 will count against your benefits with the exception of mini-jobs.
Top-up by the employer
Some employers support their employees by voluntarily topping up the short-term work benefits. Normally, these benefits have to be taxed but due to the Corona pandemic, these top-up amounts from the employer are tax-exempt as long as they (together with the benefits) don’t exceed 80% of the lost wages. This regulation also applies to 2021.
What is the tax impact of Corona?
Home office lump sum (Home-Office-Pauschale)
The home office lump sum is a tax relief introduced for all employees working remotely due to Corona who can’t claim a tax-recognised work room in their home (häusliches Arbeitszimmer). A flat rate of 5 euros per home office day can be deducted from your taxes. The lump sum is limited to 600 euros per year and applies for 2020 and 2021, meaning a maximum of 120 home office days per year can be claimed. The home office lump sum is included in the employee lump sum (Arbeitnehmer-Pauschbetrag) of 1,000 euros. If you exceed 1,000 euros in income-related expenses (Werbungskosten) per year, you can deduct them by proving each expense individually. This can include, among other things, commuting allowance (Entfernungspauschale), work equipment (Arbeitsmittel), incidental expenses (Nebenkosten) and insurance contributions (Versicherungsbeiträge), etc., it’s not unlikely that you’ll exceed 1,000. Just try it!
Tip: Try to deduct costs for disinfectants and masks (e.g. FFP2 masks) as income-related expenses if you need them for work and your employer required you to purchase them.
Corona special payment (Corona-Sonderzahlung)
To alleviate the burden brought on by Corona, employers are allowed to award tax-free bonuses of up to 1,500 euros to their employees. This “Corona bonus” does not have to be listed either in the tax return or on the income tax statement (Lohnsteuerbescheinigung). It is applicable per employment contract.
- Period of agreement and payment: 1 March 2020 to 31 December 2021
- In addition to wages (regular wages may not be converted into a special payment)
- Agreement between employer and employee must designate that it is Corona-related tax-free aid
Corona: Return Journey Costs
In March and April 2020, many German and business travellers were stranded abroad due to the lockdown. In response, the Federal Foreign Office brought 240,000 Germans back to Germany with specially chartered aircraft in an repatriation campaign. The flat-rate personal contribution to these costs can be claimed in your 2020 tax return: Individual tourists can deduct them as extraordinary expenses (außergewöhnliche Belastungen), business travellers as income-related expenses (provided the employer did not cover the costs).
An extraordinary expense, i.e. a higher burden of expenses compared to other taxpayers with similar income and marital status, can be claimed if it is inevitable and necessary. This was the case because of the Corona-related border closures and the almost complete shutdown of air traffic worldwide. The only hurdle: The limit of the “reasonable burden” must be exceeded in order to be able to deduct the costs. This limit is determined by income, marital status and number of children.
Important: The journey must have begun before the Foreign Office issued a travel warning for the destination. Anyone who travels to a risk area despite a travel warning is responsible for this and cannot deduct the costs.
Loss of earnings
If you were in quarantine in 2020 or could not go to work because school and kindergartens were closed and had no childcare, you may have received compensation for wage losses (Verdienstausfallentschädigung) under the Infection Protection Act (Infektionsschutzgesetz). This wage replacement benefit (Lohnersatzleistung) is paid for a maximum of 10 weeks per parent (single parents: 20 weeks) and for children up to and including 11 years of age. This regulation is initially valid until the end of June 2021. The compensation for loss of earnings is also subject to Progressionsvorbehalt and obliges you to file a tax return.
Corona: Support for parents
Parents received a child bonus (Kinderbonus) amounting to 300 euros per child in September and October of 2020. A further child bonus of 150 euros was paid in May 2021. The child bonus is part of the federal government’s Corona economic stimulus program. It is tax-free and, together with child benefit (Kindergeld), is automatically offset by the tax office against the child allowance (Kinderfreibetrag) to determine the most favourable option (child benefit and child bonus or child allowance). Families with low or medium incomes benefit most from the child bonus.
Relief amount for single parents (Entlastungsbetrag für Alleinerziehende)
Single parents are experiencing an especially large burden due to lack of childcare during the Corona crisis. Therefore, the relief amount for single parents was increased from 1,908 euros to 4,008 euros in the Second Corona Tax Aid Act (Corona-Steuerhilfegesetz). This initially applied to 2020 and 2021. The Annual Tax Act 2020 (Jahressteuergesetz 2020) extended this beyond 2021.
Allowances and tax-free amounts increasing in 2020
The basic tax-free allowance (Grundfreibetrag) was increased for the year of 2020, tax-exempting income up to a certain limit. For single people it is 9,408 euros, for married couples assessed together 15,540 euros. Income tax only has to be paid on incomes that exceed thes limits.
The child allowance (Kinderfreibetrag) also increased in 2020. Including the allowance for educational, care and training needs (BEA), the child allowance is now 7,812 euros.
The sum of deductible contributions to old-age provision (Altersvorsorge) increases by 2% per year. In 2020, you will be able to deduct 90% of your pension contributions.
Flat rate for moving expenses (Umzugskosten-Pauschale)
If you move for professional reasons, you can deduct the costs as income-related expenses (Werbungskosten). You can cover part of the moving costs with the “lump sum for other moving costs” (Pauschale für sonstige Umzugskosten). This flat rate was changed several times in 2020: Until February 29th, it was 811 euros for singles and 1,622 euros for married couples or single parents including 357 euros for each child. From March 1st to May 31st, the flat rate for singles was 820 euros and 1,639 euros for married couples or single parents. For each additional person, 361 euros was added.
As of June 1st 2020 this was changed to a lump sum of 860 euros for each person. For each additional person moving (spouse or partner, child, stepchild, foster child), a lump sum of 573 euros will be added. The flat rate for moving costs does not apply to moving costs in the case of double household - in this case the costs must be proven individually.
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