Tax Calculations: What and Why You Should Understand It

At the end of each calendar year, all taxpayers are generally obliged to declare their income from the previous year in their wage or income tax return. An assessment can only be omitted under certain conditions.

Employee tax assessment

For example, an employee who was employed by only one employer all year round and who had no further taxable income, does not need to file a tax return, since the employer has already deducted income tax from his wages. The taxpayer could, however, be entitled to submit a tax return and thereby effect an offsetting of overpaid wage tax against income tax, in which he can prove tax-reducing circumstances. This is permissible if the other income amounts to a total of more than 410 euros.

Compensation effect through a separate tax rate for savings

An assessment is also not made for a taxpayer who has earned investment income in the past calendar year from which tax deductions (investment income tax, solidarity surcharge and church tax) have already been withheld. However, there is an option to also subject this investment income to an individual income tax assessment in order to include circumstances not previously taken into account when deducting capital gains tax. 

An application assessment comes into consideration in particular in the case of unused saver lump sums, if no exemption order has been issued, in cases in which a flat-rate substitute assessment limit was applied instead of unproven acquisition costs for certain investment income, in the case of loss offsets, for the deduction of foreign tax, to check the tax withholding, for the deduction of church taxes, etc. In addition, a cheaper test can be requested if the individual taxation of the investment income is lower overall for the taxpayer. However, in the case of an employee tax assessment from 01.01.2021, this is only possible if the total income from investment income is above the minimal is limit of 410 euros. The BMF published a current leaflet on this in April, which we will deal with elsewhere.  Make your calculations with the tax return calculator.

Pension taxation

Since 2005, the taxation of pensions has been gradually converted to so-called downstream taxation. Anyone who retired in 2005 or earlier must pay tax on half of their gross retirement income. This percentage rises for each new age group of pensioners. From the retirement age group 2040, the old-age pensions are then fully taxable. In return, the deductibility of the contribution payments increases. In the years before 2005, often only a much smaller portion of the income from pension payments was taxed. Since 2005, this has led to an increasing number of pensioners being required to file an income tax return. It is advisable to check in any case whether there has been a tax declaration obligation since then.