Pension increase in summer leads to tax surprise

Pension increase in summer leads to tax surprise

Pensions will increase by 4.57 percent in both East and West Germany in the summer, which is higher than expected. This increase also exceeds the inflation rate, which was 2.2 percent in March. This is a positive development compared to previous years, when pension increases lagged behind inflation. The pension adjustment will take place in both parts of Germany for the first time in 2024, after the west experienced an increase of 4.39 percent and the east of 5.86 percent last year.

However, the increase in pensions can surprise individual pensioners as they suddenly have to pay taxes. According to information from the Federal Ministry of Finance, the number of taxpayers will increase by around 114,000 due to the pension increase in July. The increase in the basic allowance to 11,604 euros per year ensures that some pensioners are released from tax liability. Nevertheless, more than 6.3 million of the 21 million pensioners in Germany will have to pay taxes this year.

Pensioners whose taxable portion of their total income exceeds the basic allowance are required to submit a tax return. In order to reduce the tax burden, it is being discussed whether the basic allowance should be increased retroactively. The tax situation of pensioners varies depending on the pension amount, other income and the year the pension begins, which affects the taxable portion of the pension income.

Pensioners are often not informed by the tax office that they have to submit a tax return. Instead, this information is often provided by the pension insurance company, which can lead to surprises. Many retirees are shocked when they are suddenly asked to file a tax return. It is therefore important that retirees inform themselves about their tax situation in order to avoid unpleasant surprises.