... for taxes?

The new year doesn't just begin with a series of good intentions. Many legal changes are also regularly announced at the turn of the year. These changes, about which the North Rhine-Westphalia Consumer Advice Center and Stiftung Warentest, among others, provide information, will be important for all taxpayers.

Limit for top tax rate increases

From 2023, the top tax rate of 42% will only apply to annual incomes from a total amount of 62,810 euros. Previously, the limit was 58,597 euros per year. In addition, the solidarity surcharge will no longer apply to all taxpayers who earn less than €66,915 per year. From 2024, it will be levied from an annual income of 66,761 euros. For married couples and registered partnerships, the double amounts will apply.

Basic tax-free allowance increases

On January 1, 2024, the basic tax-free allowance for single people will rise from €10,908 to €11,604, while married couples will be entitled to €23,208. The basic tax-free allowance is the amount up to which the income of single people or jointly assessed spouses remains tax-free. This minimum subsistence level is therefore not affected by tax. As the tax authorities will only deduct tax from income above the new basic tax-free allowance in 2024, citizens will have more "net" from their "gross" income. The so-called benchmark rates will be shifted to the right in line with expected inflation, so that taxpayers in all income tax brackets will benefit from this.

The benchmark for the top tax rate (42%) will rise to EUR 66,779 (2023: EUR 62,827). It is payable at this level per additional euro earned. Spouses assessed jointly have double the income limits for joint income. The rate thresholds for the so-called "wealth tax" remain unchanged compared to 2023 at EUR 277,825, with the tax rate of 45% applying from EUR 277,826.

Child allowance to be increased

The tax-free child allowance, which ensures a child's minimum subsistence level, will also be increased: From January 1, 2024, this will then amount to 6384 euros (per child for both parents), up from 6024 euros in 2023. For separated parents, half the allowance (3192 euros) will be applied. The tax office calculates whether the child's minimum subsistence level is already covered by the child benefit or whether the child allowance is more favorable for the parents. In this case, the child allowance is then automatically taken into account in the income tax assessment and the child benefit is treated as an advance payment. The tax savings from the child allowance are usually higher, especially for higher incomes.

Limit for solidarity surcharge increases

Since the beginning of 2021, around 90 percent of taxpayers no longer pay a solidarity surcharge (Soli) due to the increase in the exemption limits. In the new year, this will rise further to 18,130 euros (2023: 17,543). This means that the calculation of the solidarity surcharge will also be adjusted in line with inflation.

New exemption limit for rental income

Income from letting and leasing must be included in the tax return. From the new year, however, there will be a tax-free limit for low rental income of up to 1000 euros per year - before deduction of associated costs. Taxpayers no longer have to report amounts up to this level to the tax office. If the income is higher, they must declare everything. Landlords can declare voluntarily if their costs are higher than their income.

Private sales up to 1000 euros tax-free

Profits from private sales will remain tax-free in future if the profit made in the calendar year is less than 1000 euros - instead of the previous 600 euros. This is an exemption limit. If you are only 1 euro above this, you will have to pay tax on everything. Anyone who trades in speculative goods will benefit from the new limit. This includes private valuables such as gold, jewelry, coins or antiques whose sale promises a profit. Anyone who buys and sells them within a year must always pay tax on the profit. The tax office automatically learns about such transactions since online trading platforms such as Ebay, classified ads, Vinted or Mobile.de have to report conspicuous sellers to the Federal Central Tax Office.

Construction and purchase of rental properties can be depreciated more quickly in future

In future, anyone who builds a property or buys a new build and then rents it out will be able to write off the acquisition or production costs more quickly than before. With the new declining balance method of depreciation, 6 percent can be deducted annually as a deduction for wear and tear (AFA). In the year of construction or purchase, the AFA amount is calculated pro rata temporis based on the costs incurred. In subsequent years, the amounts are calculated based on the residual value of the property. As the assessment basis decreases each year, the depreciation rates also decrease steadily. It is permitted to switch from the declining balance method to straight-line depreciation at a rate of three percent per year, in which the remaining acquisition or production costs are distributed in equal annual amounts over the remaining useful life.

The declining balance AFA applies to all buildings that are built in the coming years. The relevant date is the date of notification of the start of construction. It must be between October 2023 and September 2029. Anyone buying a new build must conclude the contract for it during this period. The purchase must also fall in the year in which the property is completed, i.e. when it becomes habitable.

More extras with your salary

If the employer treats the employee to a meal, this may constitute taxable wages for the tax office. The so-called non-cash benefit values are decisive: from January 1, 2024, the monthly values for meals will increase to 313 euros (previously: 288 euros). This means that from 2024, the following values will apply for reduced-price or free meals

Breakfast: 65 euros per month; 2.17 euros per calendar day
Lunch: 124 euros per month; 4.13 euros per calendar day
Dinner: 124 euros per month; 4.13 calendar days

The non-cash benefit value in the Social Insurance Remuneration Ordinance (SVEV) regulates the tax valuation of meals and is relevant both for the valuation of employer-provided canteen meals and for the issue of meal vouchers or restaurant vouchers. The new remuneration in kind values will apply from the first payroll month of 2024.

As with meals, the values for accommodation or rent will also increase. In 2024, the non-cash benefit value for free accommodation will be 278 euros (previously: 265 euros) per month across Germany; 9.27 euros per calendar day. So if an employee receives both free accommodation and free meals throughout the year, this means for the tax office: the monthly gross income on which taxes and social security contributions are payable increases to 591 euros (313 euros + 278 euros).

Tax rebate for severance payments only from the tax office

If the employment contract is terminated by the employer, it is not uncommon for terminated employees to receive a severance payment - often with a tax bonus. From the new year, this will only be granted by the tax office.

If employees receive the severance payment in one go, their income in the year of payment is higher than usual and tax increases. This disadvantage is to be compensated for by the one-fifth rule, under which a lower tax rate is applied to the severance payment. Previously, the employer was already able to charge a reduced wage tax. To ease the burden on companies, the tax offices are now taking over. In future, employees will first have to submit their tax return in order to receive the tax discount.