The reasons why not everyone benefits from a tax refund (Steuererstattung)

One way to supplement the household budget is to file a tax return. Taxpayers in Germany receive an average of €1,007 from their respective tax offices. So why pass up filing your tax return? After all, it is tax money that we have already spent.

However, €1,007 is only an average. This means that many get more and many also get less from the tax authorities. There are a number of reasons for this. Unfortunately, there is not a general statement, because every case has to be considered individually.

Reason 1: Employee lump sum (Arbeitnehmerpauschbetrag)

Those who do their respective tax return automatically benefit from the so-called employee lump sum (Arbeitnehmerpauschbetrag). In this case, a flat rate (Pauschale) of €1000 is deducted from the taxpayers total income. As a result, the general tax burden (Steuerlast) is reduced. This has been an employee lump sum since 2011, which is also referred to as Advertising cost flat rate (Werbungskostenpauschale).

A tax refund is sensible if the taxpayer had higher expenditures than €1000 within a given calendar year. So, for those who did not have any expenses, submitting a tax return is normally not the adventageous. It’s not rare that a lump sum amount is exceeded from transportation costs to work (Entfernungspauschale) and this is a reason for a tax refund (Steuererstattung) to be possible.

Reason 2: No expenses during the tax year

A tax declaration (Steuererklärung) is normally submitted because the taxpayer would like to get money refunded. For example, those who are paying for two households (doppelte Haushaltsführung) or have high medical expenses can most likely expect a refund. Commuters can also deduct thier expenses as well as employees who have relocated for work. There are many reasons to get a tax refund (Steuererstattung). Of course, if there are no costs incurred during a tax year, you can not benefit from a tax refund.

Reason 3: Monthly tax deduction (Steuerabzug) via payroll

Those who have travelled to work, day in, day out, normally cannot expect a refund for the commute (e.g. the ticket for public transportation) if over €1000. This is especially the case when taxes have already been paid via the monthly pay slip, which is normally the case.

Reason 4: How is the aggregate amount of the average tax refund €1,007?

In 2014, there were around 24 million non-self-employed taxpayers in Germany, who earned their income solely from employment. Around 13 million of these people submitted a tax declaration (Steuererklärung). Around 11.6 million of the approx. 13 million taxpayers received a refund. That was an average of €1,007 per person.

Around 60% of the refunds were between €100 and €1,100. 10% received a refund of less than €100. Only 1% received more than €5,000. So, that leaves about 1.5 million people over that even had to make a back payment. The average amount for those affected was €1,020.

Therefore, it is very unlikely that everyone has a right to a €1,007 refund. However, this is only a guideline.

Reason 5: Insurance costs often have no impact on refund amount

Social security contributions (Sozialversicherungsbeiträge) are normally deducted from your taxes. Additionally, contributions for private Riester or Rürup insurance can be claimed for tax purposes. Contributions to health insurance are completely recognized by your respective tax office.

There is a catch though, there is a maximum amount for contributions that are taken into account. This is currently €1900 for employees. Those self-employed can claim €2800. As a rule, the maximum amount is reached relatively quickly with health insurance contributions, which is why spending on additional insurance is usually no longer recognized. Thus, for example, the costs of term life insurance, accident insurance, dental insurance or liability insurance (Risikolebensversicherungen, Unfallversicherungen, Zahnzusatzversicherungen or Haftpflichtversicherungen) have no effect on a possible tax refund (Steuererstattung).

Reason 6: Different work models - From full time to part time and back

The amount of the monthly payable tax is based primarily on:

  • Income
  • Family status
  • Number of dependents
  • Type of employment

If one of these parameters changes, the income tax rate (Steuertarif) often changes as well. That means that the tax burden (Steuerlast) can increase, but can also be lower. If, at the end of a calendar year, a tax return (Steuererstattung) is submitted, the total income is considered, which puts you in a certain tax bracket (Steuerklasse), which is due for the entire expired tax year. If, for example, someone gets a rais in the middle of the year, the tax burden (Steuerlast) will adjust accordingly. In view of the total income, the tax burden may thus be higher than the tax already paid. The result is that the amount of the refund will be less or there may be no refund at all.

Generally, it can be stated: If living conditions change, this can have an influence on the tax refund, because the tax burden changed during the course of the calendar year.

Reason 7: Proviso safeguarding progression (Progressionsvorbehalt)

Most state social benefits (Sozialleistungen) are tax-free. That, of course, sounds great at first; however, the tax burden (Steuerlast) increases during claim time due to the so-called proviso safeguarding progression (Progressionsvorbehalt).

Proviso safeguarding progression means that income like unemployment benefits or parental allowances (Arbeitslosen- or Elterngeld) are used to determine the tax rate (Steuerlast), without being taxes themselves. A proviso safeguarding progression, under certain circumstances, leads to back taxes being paid. This is also the case if all income does not exceed the base tax exemption limit (Grundfreibetrag currently €9000 for singles). Those who earn less, but received social benefits (Sozialleistungen), exceeds the tax exemption limit because of the proviso safeguarding progression and will subsequently be taxed according to the marginal tax rate (Eingangssteuertarif).

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