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Wage tax reduction

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Allowance for wage tax deduction

Increased income-related expenses, special expenses and extraordinary expenses can already be taken into account for employees when deducting income tax. The tax-reducing effect then takes effect immediately when the monthly wage/salary payment is made and not only as part of the income tax assessment. The application for wage tax reduction must be submitted to the tax office using an official form; the tax authorities store this wage tax deduction data in the ELStAM database.

Beginning October 1, 2018, a payroll tax credit may be claimed for 2019, valid for a maximum of two calendar years.

Until November 30, 2018, it is also still possible to apply for a wage tax reduction for the current year 2018, so that an allowance can still be taken into account, for example, when determining the wage tax for December.

Eligible expenses

Income-related expenses are only taken into account to the extent that they exceed the employee’s lump-sum allowance of 1,000 euros (in the case of pension payments: 102 euros). However, an allowance, e.g. for income-related expenses and special expenses, is only possible if the sum of the expenses to be taken into account exceeds the application limit of 600 euros.

According to Section 39a EStG, the following expenses in particular are eligible:

  • Income-related expenses (travel between home and first place of work, double housekeeping, etc.),
  • Special expenses (education costs, maintenance to divorced or separated spouses, donations, etc., and childcare costs),
  • extraordinary burdens (after deduction of a reasonable burden, if applicable).

The following amounts are to be considered without regard to the application limit:

  • Lump sums for disabled persons and surviving dependents (§ 33b EStG),
  • Expenses for household-related occupations and services; four times the reduction amounts applicable under Section 35a of the German Income Tax Act (EStG) is taken into account as an allowance,
  • losses from other types of income (e.g. from renting and leasing).

It should be noted that the tax office must be notified of any change in circumstances (e.g. reduction in expenses) if this leads to a reduction in the tax-free amount.

Factor procedure for spouses

Working spouses can apply for the so-called factor method to be taken into account when deducting income tax (§ 39f EStG). This application is all the more reasonable the more different the wages of each working spouse are.

The wage tax according to wage tax class IV is then reduced by a factor based on the expected annual income tax.

(For further comments and information, please see our Information Letter 11/2018).

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