Tax liability for pensioners: New regulations and implications for financial planning in 2024

Tax liability for pensioners: New regulations and implications for financial planning in 2024

According to a report by www.merkur.de, pensioners have to check every year whether an annual statement from the tax office is necessary because pensions increase (almost) every year. This leads to uncertainty about when the tax authorities will strike. Pensioners are liable to tax if their taxable income exceeds the annual basic allowance. The basic tax allowance for 2023 is 10,908 euros for single people and 11,604 euros for 2024. If you are married, this allowance doubles. Taxable pensions are constantly increasing and it is expected that 100% taxation of “new pensions” will be achieved by 2040.

The planned “Growth Opportunities Act” in Berlin is intended to postpone 100% taxation until 2058. The pension increases are 100 percent taxable, which can lead to pensioners who were previously exempt from tax becoming liable to pay taxes.

The calculation of the taxable portion of the pension depends on various factors, such as the taxable portion of the pension and other income. Pensioners can be exempt from the obligation to submit a tax return through a non-assessment certificate and thus also save on capital gains tax.

The Federal Constitutional Court did not accept the proceedings regarding the double taxation of pensions for decision on November 7, 2023, which means that the currently applicable regulation remains in place.

These developments mean that pensioners will face increasing tax liability in the coming years as pension income and pension increases rise. This could lead to an increased tax burden on the population and influence investments in the pension and insurance industries. Retiree tax service providers may see increased demand as retirees increasingly seek solutions to minimize tax obligations.