Double taxation of pensions in Germany can significantly impact your budget. The current rule is that retirees must later prove double taxation themselves, which is only possible if they can provide the relevant documents to the tax office.
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Therefore, it is essential to keep all tax and pension notifications. According to a decision by the Federal Finance Court (BFH) in May 2021, the "Traffic Light" coalition is working to eliminate double taxation.
Double taxation of pensions in Germany: what you need to know
Starting from 2023, taxpayers have the opportunity to deduct 100 % of their pension contributions from taxes. Initially, this was not supposed to be possible until 2025.
Another plan not yet enshrined in law is to extend full taxation of pensions until 2060. Currently, pensions will be taxed at 100% by 2040. The SPD, Greens, and FDP want to change the situation by increasing the taxable portion of pensions by only 0.5 % per year from 2023, instead of 1 %.
The taxable portion of the pension depends on the year of retirement.
If you retire in 2023:
- You will have to pay tax on 83 % of your pension;
- 17% remaining tax-free (pension allowance).
Under the current situation, anyone retiring in 2024 will have to pay tax on 84% of their pension. If the "Traffic Light" plan becomes law, the taxable portion will be only 82.5 % in 2023 and 83 % in 2024.
The VdK social association calls for full taxation of pension income from 2070, not 2060. According to VdK, this is the only way to avoid individual cases of double taxation.
To determine if there is a real risk of double taxation, you first need to find out the total expected tax-free pension. Consider only individual pension benefits (depending on the year of retirement) and the spouse's allowance, who may live longer on the deceased's pension. Other supplements, such as basic support or fixed advertising expense rates, are not included.
It's also worth noting that the tax office does not take any action on its own. If an invoice indicates that a portion of the pension has been taxed twice, send the documents to the tax office and request verification.
If officials do not confirm the person's agreement, the first step is to file an objection. If this is also rejected, the only option left is to file a lawsuit in tax court.
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To avoid potential double taxation, it's crucial to calculate your total expected tax-free pension accurately, considering individual pension benefits and your spouse's allowance.
If you suspect that a portion of your pension has been taxed twice, you should send the relevant documents to the tax office for verification and request clarification.
