Tax Return Germany 2023: All you need to Know

Who has to file a tax return in Germany?

In Germany, the requirement to file a tax return is based on various factors. While it may not be the most enjoyable task, filing your tax return can be financially rewarding. If you’re new to this process or feeling apprehensive, take solace in the fact that nine out of ten people who file a tax return in Germany receive a refund from the government.

In many cases, individuals who voluntarily submit their tax return are likely to receive a refund, especially when using user-friendly tax programs that guide you through each step. These programs provide clear instructions, often available in simple language and partially in English, making the tax return process more manageable. Additionally, many tax software applications offer valuable tips on maximizing deductions and saving on taxes. With these resources, the annual tax return can become a less daunting task and even an opportunity for financial optimization.

It’s important to understand your specific circumstances to determine whether you are required to file a tax return in Germany. Factors such as your income level, marital status, and additional sources of income can influence your tax return obligations. Consulting with a tax professional or utilizing reliable tax software can help you navigate these requirements and ensure compliance with German tax regulations.

What is the income tax “Einkommenststeuer”?

Income tax, referred to as “Einkommensteuer” in Germany, is a crucial component of the country’s tax system. It is imposed by the government on individuals and is determined based on their annual earnings, taking into account factors such as marital status and family situation. The income tax system in Germany follows a progressive scale, meaning that higher income levels are subject to higher tax rates.

When you receive your income, your employer typically withholds a portion of it as income tax. This is done through the payroll system, ensuring that taxes are paid throughout the year. However, the exact amount of income tax you owe may need to be adjusted through an annual tax return. By filing a tax return, you can take advantage of deductions, allowances, and tax credits that may lower your taxable income and potentially result in a refund.

Navigating the complexities of the income tax system can be challenging, especially when considering various deductions and credits that may apply to your specific situation. Seeking professional advice or using tax software can help ensure accurate calculations and maximize your tax benefits. Remember, it is essential to fulfill your tax obligations and comply with the regulations set forth by the German tax authorities.

taxes in Germany
All taxpayers in Germany, including foreigners living and working in the country, are assigned a tax class.

What is a tax class “Lohnsteuerklasse”?

All taxpayers in Germany, including foreigners living and working in the country, are assigned a tax class (Lohnsteuerklasse). The tax class determines the amount of income tax an individual is required to pay.

Tax Class 1: If you are single, permanently separated, or divorced, you belong to tax class 1. This tax class generally has the highest income tax rate, which is approximately 42% of your salary.

Tax Class 2: Tax class 2 is designed for single parents who live alone and apply for tax relief.

Tax Class 3: Married employees or those in a registered civil partnership can choose tax class 3 if one spouse earns significantly less or does not work. The other spouse or partner will then be assigned tax class 5. If both spouses have similar incomes, tax class 4 may be more beneficial.

Tax Class 4: Married couples and civil partners can opt for income splitting, where the higher-earning individual pays taxes at the rate of the lower-earning spouse/partner. This arrangement helps to reduce the overall tax burden for the couple.

Tax Class 5: Tax class 5 applies to professionals who are married or in a civil partnership, and their spouse or partner falls into tax class 3.

Tax Class 6: Tax class 6 is applicable to individuals who have a second job or multiple jobs.

tax in Germany
If the tax office has incorrectly assigned you to a tax class, you can request a change.

Can I change my tax class in Germany?

Absolutely! If you experience significant life changes such as marriage, divorce, or starting a new job, you have the option to request a tax class change in Germany. If the tax office has incorrectly assigned you to a tax class, you can also request a change.

To initiate a tax class change, you simply need to complete an “Antrag auf Lohnsteuerklassenwechsel” (application for tax class change) form. The most convenient way to do this is by visiting your local tax office in person. It’s crucial to bring along all relevant certificates and documents to ensure accurate placement in the appropriate tax class from the beginning.

tax return germany
Using a tax refund calculator to estimate your potential refund is recommended.

Can You Expect a Tax Refund in Germany?

Here are some common scenarios that may result in a tax refund:

  1. Commute: If your daily commute to work exceeds half an hour.
  2. Education: If you have undertaken further education or training courses during the tax year.
  3. Equipment: If you have purchased technical equipment, such as a computer, for work-related purposes.
  4. Marital Status: If you are married and fall into tax class III or IV.
  5. Self-Employment: If you have additional income from self-employment alongside your main job.
  6. Relocation: If you have moved for professional reasons during the tax year (especially relevant for expats).

If multiple factors apply to your situation, it is likely that filing a tax return will be beneficial for you. Using a tax refund calculator to estimate your potential refund is recommended. If you anticipate a substantial amount, it is advisable not to forgo this opportunity.

Can you do an Online Tax Return in Germany?

Yes, you can definitely do an online tax return in Germany. The German tax authorities provide an online platform called ELSTER (Elektronische Steuererklärung), which allows taxpayers to submit their tax returns electronically. ELSTER is free to use and offers a convenient and secure way to file your tax return from the comfort of your own home.

Advantages of Online Tax Return in Germany:

  1. Accelerated Process: Online tax returns allow for faster processing and turnaround times.
  2. Paperless Approach: Say goodbye to piles of paperwork as online tax returns eliminate the need for physical forms.
  3. Simplified Language: Tax returns can be prepared using user-friendly language, making it easier for individuals to understand and complete the process.
  4. Tax Saving Tips: Online tax programs often provide valuable tips and suggestions to help you maximize your tax savings.
  5. Instant Refund Forecasts: Get immediate estimates of your tax refund amount before submitting your return.
  6. Plausibility Checks: Many online platforms offer automated checks to ensure the accuracy and consistency of your tax return before submission.
  7. Secure Data Transmission: Your data is securely transmitted to the appropriate tax authority, protecting your personal information.

The downside:

  1. Cost of Tax Software: Some online tax programs require a fee or subscription. Additionally, certain programs may require installation and periodic updates.

While using online tax software may involve an additional investment compared to using free forms, it can be highly beneficial, especially for those unfamiliar with tax terminology. It not only speeds up the process but also makes it more enjoyable and rewarding, as these programs often identify potential areas for tax savings.

When is the deadline for the 2023 tax return?

The deadlines for filing income tax returns have undergone changes in recent years. Traditionally, the deadline for the previous year’s tax return was May 31, but due to the Corona Pandemic, adjustments have been made.

For the 2022 tax return, the deadline is now October 2, 2023, while for the 2023 tax return, the deadline is September 2, 2024. The filing deadline will then return to the regular schedule, with July 31, 2025, being the deadline for the 2024 tax year.

If you have a tax advisor, the deadlines are also extended. The deadline for the 2021 tax return is August 31, 2023, for the 2022 tax return it is July 31, 2024, and for the 2023 tax return, it is June 2, 2025. The normal filing deadline will apply again from 2025, requiring tax advisors to submit the 2025 tax declaration by Monday, March 1, 2027. It is important to be aware of these deadlines to ensure timely submission of your tax returns.

For whom is the voluntary submission of a tax return worthwhile?

Opting for a voluntary tax return in Germany can often be advantageous, as it opens up the possibility of receiving a refund for overpaid taxes. Several scenarios make a voluntary tax return worthwhile:

  1. High advertising costs, special fees, or specific charges were incurred.
  2. Expenses were made for household services, artisans, or household help.
  3. You commenced a new employment during the tax year.
  4. Your monthly salary varies.
  5. Your tax class changed within the tax year.

Moreover, a voluntary tax return proves beneficial even if the tax office demands an additional payment. By submitting a voluntary tax return and initiating an appeal procedure, you can contest the request and avoid making any payments. Overall, a voluntary tax return offers an opportunity to optimize your tax situation and potentially receive financial benefits.

Engaging a tax consultant is recommended if you have a complex tax situation requiring expert guidance.

Choosing the Right Approach: Tax Accountant, Income Tax Help Club, or Tax Software?

When it comes to preparing your tax return, you have several options to choose from. You can manually fill out the forms or use tax software to streamline the process. Alternatively, you may opt to enlist the services of a tax accountant. The choice depends on your specific needs and circumstances.

Engaging a tax consultant is recommended if you have a complex tax situation requiring expert guidance. They provide personalized assistance and can navigate intricate tax matters. However, it’s important to note that individual cases may incur additional costs.

For simpler tax returns, an income tax help club, such as the “Lohnsteuerhilfeverein,” can be a cost-effective option. They offer essential advice and professional assistance at a lower fee compared to a tax consultant.

Another approach is utilizing tax software, which is widely available at affordable prices. These programs provide support and guidance throughout the tax preparation process. With the right software, you can ensure accuracy and efficiency in organizing your tax return.

Ultimately, the best choice depends on your preferences and the complexity of your tax situation. Consider your specific needs and select the method that suits you best.