The most significant tax law changes of 2021 at one glance
Effective 1st of January of this year, the temporary VAT reduction ran out and the rates rose again to 19% or 7% respectively. Besides that, the turn of the year again entails considerable changes to Germany’s tax laws. Important changes affect the equalisation of burdens, directly privileging families. Every income tax payer profits from the increase of the personal exemption limits as well as the mitigation of fiscal drag effects. Another prominent measure coming into force is the virtual abolition of the solidarity surcharge.
2. Improvements regarding profit tax
2.1 Flat-rate home office deduction
As a direct consequence of the vastly increased number of home office workers due to the COVID pandemic, a flat rate amount of 5 EUR per full-time working day, capped at a maximum of 600 EUR per year, can be declared as part of one’s income-related expenses. In order to enjoy this advantage as a regular tax payer, it is not mandatory to maintain a dedicated separate home office room or area to declare the abovementioned sum. The amount declared will be credited against the 1,000 EUR which is the standard lump-sum amount for income-related expenses.
2.2 Commuter lump-sum
Employees commuting long distances to work are now entitled to declare higher amounts to profit from the so-called commuter lump-sum. Under this allowance, of the distance travelled on a regular working day, commuters can declare one of the two ways travelled between place of residence and place of work as their commute and enjoy a tax relief.
As in previous years, for the first 20 kilometers of that declarable commute, an amount of 0,30 EUR per travelled kilometer is accepted by fiscal authorities. For every kilometer travelled that goes beyond this 20-kilometer threshold, tax payers now profit from a lump-sum tax reduction of 0,35 EUR per kilometer.
Workers not paying income tax can apply for a mobility bonus for distances travelled beyond 20 kilometers at their local tax office.
2.3 Tax-free trainer lump-sum
Part-time income from activities as a trainer, instructor, nursery teacher, care worker or similar activity as regulated in § 3 Nr. 26 of the German income tax code (EStG) are allowed as tax-free up until a yearly lump-sum of 3,000 EUR. This exemption is not limited to taxes but also applies to social security contributions. In total, the tax-free trainer lump-sum gets raised by 600 EUR compared to the previously accepted amount.
2.4 Voluntary work tax-free lump-sum
From this year on, an amount of up to 840 EUR per year can be paid to individuals by non-profit organisations for carried out works without any tax implications for the recipient and with no separate receipts or balance sheets necessary. This tax relief goes hand in hand with a social security contribution exemption.
2.5 Donation receipt
Donations up to an increased amount of 300 EUR can be declared as tax deductible special expenses with only a simplified donation receipt.
2.6 Retirement provision expenditures
It became easier for tax payers to deduct retirement provision expenditures such as contributions to the general statutory pension fund or to dedicated pension funds for certain professions. Such contributions may now be considered as a special expense up to a maximum amount of 25,787 EUR or 92 percent . For workers contributing to the statutory pension insurance fund the tax free portion settled by the employer will be deducted from their to be deducted provision expenditures.
The tax exempt amount for children as well as the tax exempt amount for caretaking, upbringing or education costs of a child is increased by 288 EUR. Parents may now declare up to 8.388 EUR per child. Accordingly, child benefits increase by 15 EUR per month and child as of January 1st. For the first and second child of a family, the benefit for each child therefore amounts to 219 EUR per month, for a third child to 225 EUR a month. For a potential fourth and every further child, a family receives a monthly benefit of 250 EUR. Single parents are entitled to declare a tax relief of 4,008 EUR, raised by 240 EUR for every child.
2.8 Personal exemption limit
The general personal exemption limit of a tax payer increases by 336 EUR to a total of 9,744 EUR. Therefore, an unwed tax payer is obliged to pay taxes only for income beyond the 9,744 EUR threshold. The limit for married couples as well as such living in a civil partnership is double the amount for unwed individuals and amounts to 19,488 EUR.
2.9 Child support expenses
In line with the abovementioned limits, child support expenses that may be declared as a so-called exceptional burden are increased by 336 EUR to 9,744 EUR.
2.10 Fiscal drag
In order to lower fiscal drag effects, alongside the abovementioned adjustment of personal exemption limits the other basic guiding values of the income tax rate are being altered. Fiscal drags occur when income and wage increases only compensate inflation, while at the same leading to a higher taxation due to the increased taxable sum. By shifting the basic tariff guiding values, an inflationary compensation instrument is being implemented into the income tax rate.
2.11 Solidarity surcharge reduction
From January 1st on, tax payers with an income below 73,000 EUR will no longer be charged the solidarity surcharge. While higher incomes face a partial relief form the surcharge, only incomes of around 109,000 EUR or higher will have to remit the duty to the full amount as before. Effective this year, this leads to a full relief for 90 percent of those who previously were charged with the duty on their wage and income taxes. Another portion of 6.5 percent will receive a partial relief. Therefore, a total of 96.5 percent of affected tax payers will enjoy a lower solidarity charge than prior.
3. Improvements for non-profit corporations
Starting this year, the tax threshold for non-profit corporations on their income from business activities is increased from 35,000 EUR to 45,000 EUR. Smaller corporations with yearly incomes of less than 45,000 EUR profit from the discontinuation of the obligation to dispose of funds within a short period of time. Besides that, requirements for transfers of funds to other corporations aiming at the realisation of tax privileged purposes are being lightened. The exhaustive catalogue of acknowledged non-profit purposes now extends to the fields of climate protection, embellishment of municipalities, support for persons who face discrimination due to their sexual identity or orientation as well as Freifunk, generally defining an initiative providing shared wireless networks to the public.
Do you have any questions about taxation or issues to be solved with your fiscal office? We will be happy to give you advice! Please contact us at email@example.com, by phone at +49 351 44753 0 or visit our website www.schaffrathlaw.de.
By your side
Schaffrath & Metzmacher Team
January 29, 2021