Pensions will increase on July 1st. That’s the good news for retirees. The tens of thousands of them who are liable to pay taxes as a result are likely to be less pleased. Read here what you need to know about it.
In the coming month, pensions will rise in Germany due to the positive wage trend – by 5.35 percent in western Germany and by 6.12 percent in eastern Germany. This increases a monthly pension of 1000 euros, which is only based on West contributions, by 53.50 euros; an equally high pension with east contributions increases by 61.20 euros. This results in an increase in the central pension value in the calculation in the west from the current 34.19 to 36.02 euros and in the east from the current 33.47 to 35.52 euros. The pension value is decisive for the calculation of the pension.
This means that retirees can look forward to a whopping increase in their salaries, but tens of thousands of them are being asked to pay by the tax office. Because they then have to pay taxes on their pension or are at least obliged to file a tax return. This is always due when the taxable income exceeds the annual basic allowance. After the increase, around 103,000 pensioners will be subject to tax for the first time, according to a response from the Federal Ministry of Finance in April to a small question from the left in the Bundestag.
Accordingly, this brings the Treasury additional revenue of at least 730 million euros. The total number of taxed pensions adds up to almost 6 million after the increase. For example, with a monthly pension of 1200 euros, around 10 percent of the increase in income tax will be deducted in the future. At 1500 euros it is around 14 percent and at 2000 euros it is 17 percent.
As early as 2020, almost 64 percent of pension benefits were taxable income. Since 2015, the average tax rate has increased by more than 8 percentage points. In addition, pensioners are unlikely to be happy either, since they will not receive anything from the planned 300-euro energy flat-rate due to the pension increases, unless they are still in employment. Apart from the fact that these may also be subject to tax, the currently rampant inflation will eat away at the pension increases.
The declaration is due if the taxable income exceeds the annual basic allowance. In 2022 it will be 9,984 euros for individuals and 19,968 euros for married couples. However, it is not just the amount of the pension that matters, but also when someone retired. Pensions have only been partially taxed since 2005.
Up until 2005, half of the pensions received at that time were still tax-free; by 2022, 82 percent of retirement benefits are already subject to tax. Because year after year, the percentage of the taxable part of the pension for the respective new pensioners increases by two percentage points. If the pension begins in 2022, it is therefore 82 percent of the gross annual pension. After that, it only increases by one percentage point for new pensioners. All pensions beginning in 2040 or later will then be 100 percent taxable.
The background to the dynamic pension taxation is the conversion of taxation to a downstream system. This means that the contributions to the pension insurance can be deducted from tax during the working life and the pension must be taxed in the payment phase.
At the very least, an income tax return is due if the total amount of a pensioner’s income exceeds the basic allowance valid for the corresponding year. This can also affect long-term existing pensioners. The good news is that the pension allowance will remain the same in subsequent years. For seniors who have been drawing a pension since 2005, 50 percent of the pension payment from 2005 will always remain tax-free in 2022. The exempt amount refers to the specific amount of money and not to a portion of the respective pension. Future pension increases must therefore be fully taxed.
It is important to know that income does not only mean the statutory pension, but all income. So, among other things, rental income, payments from a company, Riester or private pension and investment income. For example, if the total amount of income for this year is EUR 16,000 for a single new pensioner, 82 percent of this (EUR 13,120) exceeds the basic allowance of EUR 9,984. The individual allowance is thus 2880 euros. A tax return of 13,120 euros is therefore due.
The amount of tax actually incurred depends not least on which expenses can be claimed for tax purposes from the tax office. As with taxpayers who are still working, pensioners also have the opportunity to deduct various costs in their tax returns. These include, for example, health and nursing care insurance contributions, church tax, donations, contributions to insurance such as accident or liability insurance and health expenses.
The same applies to the costs that pensioners incur if they seek the help of an income tax assistance association or tax consultant or have them check whether they are liable for tax. Which is not a bad idea, because pensioners also have an obligation to bring the tax office. So you shouldn’t wait for the authority to knock on your door. Otherwise, this form of retirement can also lead to additional payments and sanctions in the form of penalty interest.
This is how the pension is calculated
