Compulsory tax assessment: Are you obligated to file a tax return?

Everyone who earns income in Germany has to give up part of their income as taxes. This money goes to the funding of the government and services for all citizens. After all, the money for social security systems has to come from somewhere. Taxes finance, for example, social security and infrastructure.

However, taxation should be fair. That is why you can recover overpaid taxes with a tax return. Many employees are even required to file a tax return. We explain to whom this applies.

Compulsory tax assessment: Who has to file a tax return?

In the case of employees the income tax is deducted directly from the salary.

For most employees the amount of payroll tax deducted from their monthly wages is sufficient.

However, in some cases employees are obligated to file a tax return.

A tax return is mandatory, if one of these conditions applies:

  1. The tax office has entered a tax exemption (Freibetrag) (Hence, there is no compulsory tax assessment, if the gross salary did not exceed 10.800 Euro that year and the tax payer did not have any additional income).
  2. The taxpayer received income without income tax deducted or received benefit replacement rate Lohnersatzleistungen that are more than 410 Euro and are subject to progressive tax Progressionsvorbehalt. Among the benefit replacement rates are unemployment benefits, short-time compensation, sick benefits, maternity pay, insolvency payments and parental allowance. The same goes for additional payments during partial retirement.
  3. In the case of separated spouses, the training allowance Ausbildungsfreibetrag, disability or survivor's lump sum (Behinderten- or Hinterbliebenenpauschbetrag) for children is not divided 50/50.
  4. If a tax payer was working for two or more employers during a part of the year – this means at least one salary is subject to tax class 6.
  5. The tax payer received severance payment using the fifth method Fünftelungsmethode.
  6. The tax payer received investment income subject to final withholding tax on which no final withholding tax has been paid.
  7. Holiday compensation is received from the wage compensation fund of the construction industry.
  8. Spouses have chosen the tax class combination IV-factor/IV-factor or III/V.
  9. Ancillary income - for example, rental income, income from agriculture or other income such as profits from cryptocurrency transactions – exceed 410 euro.
  10. In the case of a trade or other self-employed work.
  11. The payroll tax card includes a spouse living abroad in the EU.
  12. If the taxpayers domicile is abroad, but the unlimited tax liability has been applied for Germany.
  13. Pensioners have taxable income higher than the basic tax-free allowance. For example, part of the pension is usually taxable. The flat-rate advertising costs or specific demonstrable advertising costs increase the limit at which income must be taxed.
  14. Retirees receive more than 11,600 euro in remuneration. Officials whose pension lump sum for remuneration was higher than the insurance contributions to be recognized must also file a tax return.
  15. The tax payer wants to claim a loss carry-over.

Note: We would like to point out here that the above list includes only the most important and most common reasons for a compulsory assessment and there are special cases that are not explicitly listed. Please note that the tax office can at any time ask a citizen to file a tax return.

Ancillary income up to 410 Euro is tax-free

Employees who earn income from non-self-employed work do not have to pay taxes on ancillary income, if it does not exceed EUR 410 per calendar year.

Basically, the amount of 410 Euro represents a exemption limit. Ancillary income in the amount of 410 euro to 820 euro will be taxed at a reduced rate. The exemption limit is automatically considered by the responsible tax office.

This does not apply to income such as unemployment benefit and capital gains from which credit institutions have already withheld the withholding tax.

Penalties for late filing

If a taxpayer misses the deadline to file his tax returns, considerable fines can be imposed. The inconvenience usually begins with a reminder from the tax office and a request to file the tax return immediately. The letter also refers to the impending penalties: a so-called late filing fee or a penalty payment.

The late payment is 0.25 percent of the income tax to be paid - per month! However, low-income earners who pay very little taxes do not get away with a correspondingly low payment. The minimum amount of the late payment surcharge is EUR 25 per month of delay.

The tax office can also use the penalty payment as a punishment. The first time the tax deadline is missed, the penalty payment is often between 100 and 500 euro. However, it can also be much higher for high incomes. Up to 25,000 euro of penalty payment is possible.

A tax estimate is bad news

If a taxable citizen submits the tax return too late, the tax office can even make a tax estimate. The tax office estimates the presumed tax liability and demands this amount from the person concerned. While this tax estimate is not a direct penalty, it often puts the taxpayer at a major disadvantage. Often the tax office takes into account only relatively low advertising costs. As a result, the estimated tax liability is relatively high. In such a case, the citizen would have to pay much more tax than they would have to pay if they had submitted their tax return in time and deducted their costs there. According to the estimate decision, there is only one month to object.

Especially for the self-employed, a tax estimate is often a horror, because the tax office usually calculates with particularly high income of the self-employed.

A voluntary tax return is worthwhile

Even if you are not obliged to file, the tax return is often worthwhile. Because you can deduct your professional expenses, costs for the trip to work, insurance and many other expenses. This saves you taxes and allows you to receive a tax refund from the tax office.