What obliges me to file a tax return?
The Income Tax Act (Einkommensteuergesetz) clearly defines who is required to file a tax return – freelancers or self-employed persons, for example, are always required to do so. Another example is retirees whose income exceeds the basic tax-free allowance (Grundfreibetrag, 9,744 euros in 2021).
Traditional employees who receive their income from non-self-employed work can consult section 46 of the Income Tax Act which fully lists all factors and circumstances that lead to a mandatory tax return. In any of the listed cases, the tax office (Finanzamt) assumes that not enough tax has been deducted from your monthly income and that you haven’t paid your tax liability in full.
Additional factors that lead to a mandatory tax return include…
- a second job in tax class VI
- if you are married with tax classes III/V or IV with factor
- untaxed additional income exceeding 410 euros per year
- if you applied for wage tax reductions (Lohnsteuerermäßigung)
- severance payments (Abfindung) taxed according to the one-fifth rule (Fünftelregelung)
If you received wage replacement benefits exceeding 410 euros per year such as short-term work benefits (Kurzarbeitergeld) or unemployment benefits (ALG 1) due to the Corona pandemic, you are required to submit a tax return to your local tax office. Wage replacement benefits are subject to the so-called Progressionsvorbehalt, thus leading to a mandatory tax return.
Note: If the tax office requests for you to file a tax return, you must do so.
There are other additional factors that can lead to a mandatory tax return. More about this can be found in our article “Who has to file a tax return?”
If I file a tax return now, will I always have to in the future?
No. This is a stubborn tax myth that is simply untrue. If you file one year, and you aren’t required to do so in the following year, you can freely decide whether you would like to file again or not.
When is it worth it to file a tax return?
In the majority of cases, it’s worth it to file a voltunary tax return. According to the Federal Statistical Office, employees receive an average tax refund of 1.095 euros! You increase your chances of a large tax refund if you:
- haven’t worked throughout the year. Your monthly income tax is calculated as if you were employed the entire year, but if your annual income is lower, your individual tax burden is automatically reduced. In addition, you’re entitled to the full 1,000-euro income-related expenses lump sum (Werbungskostenpauschale), regardless of whether you actually had expenses amounting to this. If you didn’t work the entire year, you only receive this full lump sum by filing a tax return.
- are a single parent and haven’t been assigned to tax class II in the current year. By filing a tax return, you secure the relief amount for single parents (Entlastungsbetrag für Alleinerziehende) which has amounted to 4,008 euros per year for your first child and 240 euros for each additional child since 2020.
- have received capital income (Kapitalerträge). If you neglected to set up an exemption order (Freistellungsauftrag) or distributed it unfavorably and paid too much withholding tax (Abgeltungssteuer), you can get your money back by filing a tax return. The tax office will automatically carry out a favorable tax assessment (Günstigerprüfung): If your personal tax rate is below 25%, the difference to the final withholding tax will be refunded.
- are married. Couples assessed together (Zusammenveranlagung) can benefit greatly from spousal splitting (Ehegattensplitting), a joint taxation method.
- are a student pursuing a second degree: Students can determine their expenses for their studies are losses and benefit from them once starting their careers. Assessed losses will then be offset against current income and reduce your tax burden. To do this, you must submit your tax return and file a loss carryforward (Verlustvortrag).
Deducting expenses from your taxes
Just about all taxpayers have deductible expenses that they can claim on their tax return to save taxes. Here’s a short overview of some common deductible expenses:
Income-related expenses (Werbungskosten)
Commuter costs: 0.30 euros per kilometer of one-way travel can be deducted for your commute from home to work each work day - regardless of method of transportation. From the 21st kilometer onwards, this increases to 0.35 euros since the 2021 tax year.
Those managing a double household for professional reasons can deduct expenses (rent, furnishings, etc.) resulting from the second home. Costs for a job-related move can also be claimed on your tax return.
Income-related expenses include all professional expenses that are not covered by your employer. This can include expenses incurred from working from home, technical literature, further education, job application costs, and more. More information can be found in our article on income-related expenses.
Household-related services and tradespeople costs
Domestic help, and services for nursing care, cleaning, and tradespeople services are all tax-deductible as household-related services (haushaltsnahe Dienstleistungen). 20% of these costs can be claimed annually and are deducted directly from your tax burden. Even your annual utility bill can save you money!
Deductible household-related services include:
- Home cleaning from cleaning services
- Hired meal preparation
- Garden maintenance
- Childcare/dependent care costs
- Renovation of modernization costs
- Snow removal services
- Janitorial services
- Window/hallway cleaning
- Pet care
Extraordinary expenses: Medical costs
Expenses incurred from an illness can be deducted from your tax return as special extraordinary expenses. These expenses must be incurred as a result of recognized illnesses or accidents.
Medical expenses include:
- Expenses for inpatient or outpatient treatment
- Hospital costs
- Personal illness or age-related accommodation in a nursing home
- Eye laser surgery
- Healing methods
- Medical remedies useful for healing or alleviating illnesses
- Medicines, remedies, and aids prescribed by a doctor
- Travel expenses to your doctor or pharmacy
- Expenses for the treatment of reading/spelling disabilities
- Costs for outpatient nurses
Additional deductible expenses
- Professionally incurred telephone and internet costs
- Contributions to professional associations
- Funeral expenses
- Costs due to working from home
- Retirement provisions
- Expenses from volunteering
Here at wundertax, we’ll ensure you don’t miss any important deductible expenses on your tax return. We offer the easiest and fastest way to secure your tax refund with our easy-to-understand tax interview! Save yourself the struggle of expensive tax consultants and complicated tax forms.