Steuererklärung simplified: Help for expats filing taxes in Germany
In writing this column, I frequently stopped to ask myself: ‘What is worse? Filing taxes, or reading about taxes?’ I am still not sure. With every tax form, embassy website or step-by-step ToyTownGermany thread I read, I felt my brain desiccating.
But I hope to spare you from this harrowing experience with a spoonful of hyperbole and only a dash of German jargon: I promise you can make it through this tax text and you’ll be happy you did.
Below is a list of the critical information you need to make your experience filing taxes less hellacious.
Find (or register for) your Steuernummer, or tax number.
If you work in Germany as a freelancer you apply for this number at your local Finanzamt (finance office). They will ask you to enter your expected salary and provide additional information regarding your financial situation and line of work. You will use this number when preparing invoices.
If you work for a German company you will receive a Steuernummer after you file your first tax return. The Steuernummer is not permanent; It will change if you move.
Do not confuse your Steuernummer with your Steuer-Identifikationsnummer, or Tax Identification number.
I made this mistake when first moving to Germany. I used my Steuer-Identifikationsnummer on invoices instead of the Steuernummer, which was a mess for myself (cannot get paid) and those hiring me (hassle for finance departments).
A Steuer-Identifikationsnummer is assigned to you by the Finanzamt after you register as a German resident at the Bürgeramt. They send this to you in the mail (within the first month) and it is everlasting, unchanging and as permanent as it gets. When you think of the Steuer-Identifikationsnummer think „till death do us part.“ It is a way of identifying yourself throughout the entire country, similar to a Social Security Number in the US.
Employers directly deduct income tax from your salary.
An employer will directly deduct income tax (Lohnsteuer) from your wages; this is the pay-as-you-earn, PAYE, model. As a general rule the higher your taxable income, the higher the rate of taxation. If this is the only way you receive income, your tax situation is likely quite straightforward.
When you declare your taxes from the previous year (or even as far back as four years, depending on your tax bracket) the Finanzamt checks if you paid too much or too little. While filing is not always required if you work for a German company, it does come with a major advantage, aka money *cha-ching* back in your bank account. The Finanzamt does check if you need to pay more (womp, womp), but the exciting news is that 90% of taxpayers in Germany receive a refund. And the average refund was 900 euros, according to the Federal Statistics Office.
Declaring your taxes
ALL income, whether earned in Germany or abroad, is fair game, i.e. it’s gonna be taxed. Declaring your taxes can be done online via ELSTER, a government platform for filing digitally, or by downloading the necessary paperwork, printing it out and mailing it in. There are six tax brackets, and in some cases you must make a declaration. Freelancers, for example, must declare.
The German government also offers a variety of deductions, which lowers your taxable income. Make sure to look through these or consider hiring a tax adviser if your language skills are not up to par.
Taxes for the previous year must be submitted by May 31, unless you ask for an extension. The Finanzamt often provides three additional months to finish up.
Taxed twice: Does your homeland or Germany get a cut?
Despite living and working in Germany, you may still be required to file taxes in your homeland. Germany does have tax treaties with dozens of countries to prevent taxing the same income twice. As this is country specific, you will need to turn to the Federal Ministry of Finance for more information on the agreement between Germany and your homeland.
In such cases, hiring a tax advisor to explain how your money is taxed between the two countries is a wise investment. It is their job to ensure you pay as little as possible.
Tax (safety) throw rings: Help is on its way!
If you find your head spinning or simply do not want to bother with filing taxes on your own there are a handful of options to explore. If you have a full-time job (sorry, freelancers), you can join a Lohnsteuerhilfeverein, or an income tax assistance association. If you pay to join the association, they will fill out your declaration forms and provide advice throughout the entire year. A quick Google search for “Lohnsteuerhilfeverein + city of residence” gives you a number of options to check out.
Buying tax software is another option worth considering, as it will guide you through the process and point out ways you could save money. Popular programmes include Wiso, Taxman and Steuereasy.