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Tax Changes in 2022: Tips for Your 2022 Tax Return

In this article, we will sum up all the important changes and regulations to tax law in 2022 to ensure you’re kept up to date and get the most out of your 2022 tax return.

Who is required to file a tax return?

There are many circumstances that can lead to an obligatory tax return, some of those include:

  • Wage replacement benefits (Lohnersatzleistungen) such as short-term work (Kurzarbeit), sickness, maternity, or unemployment benefits, or untaxed additional income that exceeds 410 euros per year
  • Second jobs in tax class 6
  • Tax class combinations of 3/5 or 4 with factor
  • Receiving allowances when deducting taxes from your wages (wage tax reduction)
  • If a spouse applies for individual assessment

More detailed information about circumstances that lead to mandatory tax assessment can be found in our article “Who has to file a tax return?"

Deadline for your 2021 tax return

The deadline for your tax return is July 31st of the year following the tax year. As July 31st, 2022 falls on a Sunday, 2021 tax returns must be received by the tax office by August 1st, 2022 at the latest. Be warned: If this deadline is missed, you can be charged with a lateness penalty fee (Verspätungszuschlag).

Deadline for your 2022 tax return

Your 2022 tax return must be received by your local tax office by July 31st, 2023.

Deadline for voluntary tax returns

Non-mandatory tax returns that are submitted voluntarily have a deadline of December 31st, 4 years following the tax year in question. For example, you could file a retroactive 2018 tax return voluntarily until December 31st, 2022.

Voluntary tax returns are almost always worthwhile!

Employees who file voluntary tax returns can expect an average tax refund of 1,051 euros!

Changes to tax law in 2022

As of January 2022, numerous tax changes have been put in place. We’ve compiled a list for you in alphabetical order:

Basic tax-free allowance (Grundfreibetrag)

As of January 2022, the basic tax-free allowance will be increased by 240 euros for a total allowance of 9,984 euros. This amount is doubled for married couples who choose to file a joint assessment (19,968 euros). Before 2022, these amounts were 9,744 and 18,844 euros respectively. Only income exceeding this amount counts towards your taxable income.

Commuter costs

The law which implemented the 2030 climate protection program has also provided relief for long-distance commuters since 2021. To compensate for the additional burden of CO2 pricing, the commuter allowance (Entfernungspauschale) was increased to 35 cents per kilometer from the 21st kilometer of one-way travel for 2021-2023. From 2024-2026, this will be further increased to 38 cents from the 21st kilometer.

Employees whose taxable income does not exceed the basic tax-free allowance (Grundfreibetrag) don’t benefit from the commuter allowance as they are not required to pay taxes. With this being said, they can still benefit from the new Mobility Premium (Mobilitätsprämie) from 2021 to 2026 and can already claim it on their 2021 tax return. This premium amounts to 14% of the increased commuter allowance (i.e. 4.9 cents from the 21st kilometer). The mobility premium is assessed based on the difference between your taxable income and the basic tax-free allowance.

Prerequisite: Your income-related expenses (Werbungskosten) must exceed the income-related expenses lump sum (Werbungskostenpauschale) of 1,000 euros.

Tip: The new commuter allowance and mobility premium apply to all means of transport and for trips home if you manage a double household.

Corona aid

Self-employed persons and companies affected by Corona-related restrictions can continue securing government support in the form of bridging and new start aid until the end of March 2022.

Corona bonus

Since March 2020, employers have the option of supporting their staff with a tax-free Corona bonus of up to 1,500 euros. This option has been extended to the end of March 2022.

Depreciation/Wear and tear (Abschreibung)

Because of the Corona crisis, declining balance depreciation was made possible for 2020 and 2021 for all movable assets (higher amounts in the first years with decreasing amounts over depreciation periods) in addition to straight-line depreciation (constant annual depreciation amounts). As of January 2022, this rule no longer applies to investments.

Home Office Lump Sum

The Home Office Lump Sum (Home-Office-Pauschale) which applies in 2020 and 2021 has been extended through 2022. Employees working from home due to the Corona pandemic (who don’t have a separate office room in their home) can claim a flat rate of 5 euros per day spent working from home and entrepreneurs can claim this lump sum as a business expense. A maximum of 120 days (600 euros) can be claimed each year.

Tip: Work equipment does not count towards your home office lump sum but can be deducted separately.

Income tax rate

To compensate for so-called “cold progression” (additional tax burdens due to price rate increases), the income tax rate was once again adjusted as of January 2022: The thresholds at which the next higher tax rate begins were each increased by 1.17%. This means that the top tax rate of 42% now applies to a taxable income of 58,597 euros.

Interest

In July 2021, the Federal Constitutional Court declared the current interest rate of 6 percent per year (0.5 per month) for tax arrears and tax refunds to be unconstitutional and a new lower interest rate must be adopted by the end of July 2022. After this change takes place, it will be applied retroactively from January 1st, 2019.

Minimum wage

On January 1st, 2022, the minimum wage was increased from 9.60 to 9.82 euros per hour. On July 1st, 2022, this will be once again increased to 10.45 euros. The coalition agreement set forth by the new German government plans to increase the minimum wage to 12 euros in October 2022.

Moving expenses (Umzugskosten)

On April 1st, 2022, the flat-rate allowance for work-related moves will increase to 886 euros for the entitled person (previously 870) and 590 euros for each additional household member (previously 580).

Property tax reform (Grundsteuerreform)

Implementation of the property tax reform begins in 2022 and land and real estate will be revalued. The new property tax will be levied as of 2025; therefore, property owners need to submit a property tax return (Grundsteuererklärung) to the tax office this year.

Relief for single parents

As the Corona pandemic is especially taxing for single parents, the German government more than doubled the relief about for single parents in 2020 and 2021 – the original relief of 1,908 per year was raised to 4,008 euros per year. From January 2022 on, the increased relief amount will apply indefinitely.

Restaurant industry VAT (Mehrwertsteuer)

The reduced sales tax rate of 7 percent will continue to apply to food (not beverages) in the restaurant industry until the end of 2022.

Retirement provisions (Altersvorsorge)

The amount of retirement contributions that you can deduct on your tax return increases each year by 2 percent – as of 2022, you are able to claim 94% of your retirement provisions as special expenses (Sonderausgaben) on your tax return. There is a maximum deductible amount of 25,639 euros (94% taken into account: 24,101 euros) for individual assessment and 51,278 euros (94%: 48,202 euros) for married couples filing a joint assessment.

Short-term work (Kurzarbeit)

The special changes made to short-term work regulations due to Corona have been extended until the end of June 2022. Anyone who was entitled to short-term work benefits (Kurzarbeitergeld) by March 31st, 2021 at the latest can receive them for up to 28 months (until, at the latest, the end of June 2022). The staggered increase in benefits also apply until the end of June 2022: from the 4th month receiving benefits and onwards, the benefits increase from 60% to 70% (66% and 77% respectively for parents). From the 7th month onwards, this increases again to 80% (87% for parents). Working a mini-job while you receive short-term work benefits will remain free of imputation until June 30th, 2022.

Note: Employer allowances for short-term work will unfortunately no longer be tax-free as of 2022, but will still count as taxable wages.

Don’t forget: If you receive more than 410 euros per year in short-term work benefits, you are required to file a tax return.

Sustenance payments for dependents

Sustenance payments for dependents (e.g. children, alimony to ex-spouses, adult children not eligible for child benefits) can be claimed as extraordinary expenses (außergewöhnliche Belastungen) up to the same amount as the basic tax-free allowance (Grundfreibetrag). In 2022, this amounts to 9,984 euros. These payments are categorized as “special extraordinary expenses” (besondere außergewöhnliche Belastungen).

Tax-free fringe benefits

The monthly exemption limit for non-cash benefits (i.e. job tickets, merchandise, gas vouchers, etc.) will be raised to 50 euros; previously, such benefits were tax-free up to 44 euros. If the value of these benefits exceeds the exemption limit, the entire amount is subject to tax. You can receive a total of 600 euros in non-cash benefits tax-free per year. Beware: The exemption limit of 50 euros applies per month and cannot be exceeded if you want it to remain tax-free – one-off payments are not possible.

Wage tax reduction (Lohnsteuerermäßigung)

Income tax allowances can be applied for at your local tax office if your annual expenses (e.g. special expenses, extraordinary expenses, income-related expenses) exceed 600 euros. Tradespeople costs and household-related expenses, on the other hand, are taken into account from the first euro. The tax-free amount from your allowances is then entered into your tax deduction details (ELStAM) and your taxes throughout the year are reduced by this amount.

Tip: The tax office automatically considers a lump sum of 1,000 euros for your income-related expenses, therefore, to apply for an additional reduction your income-related expenses need to exceed 1,600 euros.

Note: Exemptions from income tax deductions oblige you to file a tax return in the following year unless your gross salary does not exceed 12,500 euros (as of 2022) or 23,900 euros for couples filing a joint assessment.

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