Pensioners beware: suddenly you are liable to pay taxes – what you need to know

Pensioners beware: suddenly you are liable to pay taxes – what you need to know

Millions of pensioners in Germany are liable to pay taxes, a fact that many are not aware of until they receive a letter from the tax office. The statutory pension will be increased by 4.57 percent in July, resulting in 114,000 pensioners becoming liable to tax for the first time. Many of those affected are surprised because they did not know that they had to submit a tax return. New retirees should be particularly careful as they have to pay tax on a higher portion of their pension than long-term retirees.

The change in the taxation of pensions in 2004 means that an increasing proportion of the pension becomes taxable, while contributions during the working phase are tax-free. The later the pension starts, the higher the taxable portion of pension income. The pension insurance company, not the tax office, indicates whether pensioners are liable to pay taxes. In the pension information from the age of 55 there is a note about the taxable and tax-free part of the pension.

Pensioners must submit a tax return if their total income exceeds the annual basic allowance. The basic allowance, which affects all taxpayers, was increased to 11,604 euros at the turn of the year. In addition to the pension amount and the taxable portion, other factors play a role, such as other income (e.g. rental income, company pensions). In total, more than 6.3 million of the 21 million pensioners in Germany have to pay taxes this year.