Myths About Filing a Tax Return in Germany

Key takeaways

• The most common myth about filing a tax return voluntarily is that you must file the tax return every year if you filed once. This is not true. You can always inform the tax office that you don’t want to file a tax return this year. Please note that if you are required to file a return, you must do so.
• If you are filing a tax return voluntarily, you don’t pay any additional taxes.
• The tax office made an average tax refund of 1063€ in 2020.
• Wage replacement benefits, such as parental allowance, are tax-free but may increase your tax rate.

This is how you do it

• Use any tax software for free to assess if you can get a tax refund.
• If you may get a tax refund, file the tax return.
• You can file the tax return yourself in simple cases, such as income from employment only. 
• Many online services help you file simple income tax returns in Germany. We find SteuerGo*, Wundertax*, and WISO Steuer* (only in German) among the best tax software.

Table of Contents

Many expats come to Germany as students or employees. They are usually not required to file a tax return. However, filing one voluntarily can help them get thousands of euros in tax refunds.

Most expats don’t file tax returns because of myths and fears about filing one. Let’s demystify them.

Filing a tax return once means filing it every year

When filing a tax return in Germany, you’ll fall into one of the two categories.

• Mandatory to file a tax return
• Can voluntarily file a tax return

If you are in the first category, you must file a tax return each year. You don’t have a choice. You can check if you are required to file a tax return here.

Everyone else falls in the second category. In this category, filing a tax return is optional.

We find that everyone in the second category should at least evaluate whether they may get a tax refund. You can do this using free tax software.

If the tax software suggests a potential tax refund, file the tax return; otherwise, don’t.

We find Wundertax*, SteuerGo*, and WISO Steuer* (German) among the best tax software out there.

If you have a complex tax return, or filing it yourself makes you nervous, you should get advice from a tax consultant. Tax consultants are not cheap in Germany. Depending on your situation, they may cost between 600€ and 2000€.

Returning to the question of whether you must file the tax return every year if you filed it once.

Short answer: NO.

Long answer: The tax office may send you an automatic reminder next year to file the tax return. But you can notify the tax office in writing that you’re waiving voluntary assessment (freiwillige Veranlagung) this year.

You might end up paying taxes if you file a tax return

You don’t pay more taxes if you file a tax return voluntarily. 

Suppose you voluntarily filed a tax return. Instead of getting a tax refund, the tax office asks for additional tax payments. What can you do in this situation?

Don’t worry, you don’t have to pay any taxes.

According to §46 Abs. 2 Nr. 8 EStG, you have the right to withdraw your tax return retroactively. All you have to do is write an objection letter to the tax office stating that you withdraw your voluntary tax return.

Moreover, you can learn how to save taxes in Germany here.

Filing a tax return is not worth it

Only after evaluating your situation can you know if filing a tax return is worth it.

Of course, sometimes filing a tax return doesn’t result in a tax refund. However, statistically, 90% of the tax filers received a tax refund from the tax office. 

Here is how much of a tax refund the tax office issued in 2020.

Percentage of people who received a tax refund	Total tax refund
9%	under 100€
57%	100€ to 1000€
32%	1000€ to 5000€
2%	over 5000€

Here are the actual numbers.

Number of taxpayers	25.8 million
Taxpayers who filed the income tax return	14.9 million
Taxpayers who received a tax refund	12.6 million, or 84.5% of people, received a tax refund
People who received a tax refund between 100 € and 1000 €	7.18 million or 57%
People who received a tax refund above 5000 €	252,000 or 2%
Average tax refund	1063 €

Filing a tax return is too complex

Yes, Germany is behind in digitalization. However, things have changed a lot in the past few years.

The tax office has digitalized many things, including the tax return process.

Earlier, you must submit the receipts when filing the tax return. Not anymore. 

Since 2017, you don’t have to submit receipts when filing a tax return. This reduces the administrative work for both you and the tax office.

NOTE: The tax office can still request receipts for certain expenses. And you must be able to submit them. 

A six-year retention period applies, as you only have to submit receipts at the tax office’s request. This means you must keep your recipes for six years before destroying them.

The retention period is even longer for business owners (10 years). The longer period applies to receipts with a bookkeeping function.

Moreover, your tax return is now processed automatically with software. A tax office clerk only inspects the tax returns if there are anomalies or unusually high tax refunds.

So, a normal tax return filed properly is usually processed by software without human intervention. 

You need a tax advisor to file a tax return

Filing a tax return yourself may seem scary, especially when you don’t know the language. However, it’s not hard once you know how to do it.

Nowadays, several tax software programs (in English) further simplify tax filing. It’s like answering some questions.

You must answer these questions even if you hire a tax advisor and provide all the information and documents. So, why not enter that information yourself directly into the tax software and save thousands of euros in tax advisor fees.

Of course, getting support from a tax advisor is useful for complex tax returns (rental income from multiple properties, income from outside Germany, etc.).

However, we believe people with simple use cases, such as income from employment only or capital gains, can file their tax returns themselves.

The tax office is always right

Many expats believe that the tax office is always correct. You either give the authorities too much benefit of the doubt or don’t want to bother objecting.

Unfortunately, this behavior only benefits the tax office.

Did you know that every one in three tax assessments is incorrect? It’s common for the tax office to make mistakes, reject, or miss valid expenses.

Thus, you should always check your tax assessment carefully to ensure all expenses have been considered. If you find something unfavorable, object to it with an explanation and supporting documents. 

You can read hundreds of legal cases against the tax office that individuals like you and I filed and, in many cases, won here.

Example: Many people lost money in the stock market during the coronavirus pandemic. You can carry that loss forward. This way, you can deduct the loss in the past from the profits in the future. Doing this can save you a lot of money. However, people often don’t know about it, or the tax office fails to consider it during the tax return assessment.

Be aware of financial advisors and insurance agents on social media

Social media, especially Facebook groups and YouTube, are flooded with financial advisors and insurance agents. These advisors often offer free tax advice as a selling point for their original services. But this is strictly prohibited.

Legally, the following people are allowed to offer tax advice.

• Tax advisors,
• Wage tax assistance associations (Lohnhilfeverein),
• Lawyers,
• Auditors, and
• Certified public accountants

Anyone who violates this rule may face a fine. 

There is an exception for close relatives (§15 AO). They can offer support with your tax returns and can even give tax tips free of charge.

The tax law considers the following individuals as close relatives.

• Fiancés, 
• Spouses or life partners,
• Relatives and in-laws in the direct line (e.g., children, parents, grandparents, or parents-in-law)
• Siblings,
• Children of siblings,
• Spouses or life partners of siblings
• Siblings of spouses or life partners,
• Siblings of parents,
• Foster parents, and
• Foster children.

Wage replacement benefits are tax-free

Allowance or benefits that replace your normal wage are called wage replacement benefits (Lohnersatzleistungen). Some of the wage replacement benefits are: 

• Unemployment benefit I: You receive this benefit when you lose your job to replace the lost income from emplyoment.
• Maternity and parental allowance: You receive it when you have a newborn. During the early days, you could not work and receive this benefit to replace your income from employment.
• Short-time work benefits: To avoid mass firing during the Corona pandemic, the German government offered short-time work benefits (Kurzarbeitergeld). You work fewer hours and get paid accordingly by your employer. The government replaces the lost income as a short-time work benefit. 

The wage replacement benefits are tax-free. However, there are two things you must know.

• Mandatory to file the tax return: If the wage replacement benefits exceed 410€ within a year, you MUST file a tax return for that calendar year.
• Progression clause (Progressionsvorbehalt): The tax office considers wage replacement benefits when determining your tax bracket or tax rate. You don’t pay taxes on these benefits, but they may increase your total income. Hence, moving you into a higher tax bracket. 

Example: Suppose you have a taxable income of 28,000€ in a year. In this case, your tax rate will be 15 percent.

Suppose you received an additional 4,000€ in wage replacement benefits in the same year. In this case, your income will increase to 32,000€. This will cause your tax rate to rise to 17 percent.

You don’t pay 17 percent of 32,000€ in taxes—instead, 17% of 28,000€.