Taxes for pension insurance should have been implemented right away through the steering wheel of vehicles.
In a recent development, the German government has made a decision regarding a billion-dollar pension package, details of which are yet to be disclosed.
Meanwhile, calls for reform in the pension insurance system have been growing louder. Bianca Schostek, a prominent figure, suggests that the pension insurance should follow the example of employers in Germany, deducting tax like they do, to provide relief to pensioners with no additional income.
As more and more people choose to work beyond retirement age, either out of necessity or for enjoyment, the topic of pension taxation has become increasingly relevant.
In 2005, the deferred taxation of pensions was introduced in Germany. The taxable portion of the pension is gradually increasing, with the full pension to be taxed in 2058. This means that many retirees, who may also have additional incomes such as rental income, private or company pensions, or regular salaries, may be required to file an income tax return and make advance payments.
Quarterly income tax prepayments, or Steuervorauszahlungen, may be required for pensioners if their annual tax liability from pension and other income sources is expected to exceed certain limits, or if the tax office determines that significant income is not covered by withholding taxes. This includes pensions that are taxable beyond the tax-free allowance or additional income such as self-employment, rental income, or capital gains.
For pensioners, if your taxable income from pensions and other sources results in a tax bill that isn't fully covered by withholding at source, the tax office may require you to make quarterly advance payments. The dates for these payments are usually March 10, June 10, September 10, and December 10 each year. If your only income is a statutory pension subject to withholding tax, you typically will not have to make advance payments unless you receive substantial additional income that is not taxed at source.
The system of quarterly advance payments is designed for fiscal fairness and regular revenue flow, aiming to avoid year-end tax payment shocks by matching tax payments to income flow. However, some pensioners find it burdensome if the advance payments are high when their income fluctuates or if administration is complex. The system can often be adjusted to reflect personal circumstances, with pensioners able to apply to the tax office for adjustment of the prepayment amounts based on real income changes.
It's worth noting that approximately one third of retirees in Germany do not have to pay taxes due to their income being below the threshold.
For more information about retirees working in old age, you can find a video on our website um 4. The audio about the government's decision on the pension package can be found at our website AKTUELL. The news radio broadcast about the pension package can be found in the ARD-Mediathek.
[1] Steuervorauszahlungen: https://www.bundesfinanzministerium.de/Content/DE/Steuern/Steuerliche-Informationen/Einkommensteuer/Steuervorauszahlungen/steuervorauszahlungen-node.html [2] Taxation of pensions in Germany: https://www.bundesfinanzministerium.de/Content/DE/Steuern/Steuerliche-Informationen/Einkommensteuer/Steuerung/pensions-node.html [3] Source: Bundesfinanzministerium (Federal Ministry of Finance) and Steuerberaterverband (German Tax Advisors' Association)
- Bianca Schostek suggests that the pension insurance system in Germany should follow the example of businesses, where taxes are deducted like they do, to provide financial relief to pensioners with no additional income in their personal-finance.
- As the topic of pension taxation becomes increasingly relevant, some pensioners may be required to make quarterly advance payments, or Steuervorauszahlungen, if their taxable income from pensions and other sources exceeds certain limits, adding complexity to their personal-finance and business affairs.
