More money for pensioners: double taxation will end in 2023 – but what does this subsidy mean for pensioners and employees?
Many pensioners in Germany have been struggling with the problem of double taxation of their pensions for years. The good news? The coalition government will finally eliminate this problem by 2023, with different age groups benefiting to different degrees.
What does double taxation mean exactly?
What exactly does double taxation mean for pensions? Like Finanztip.de explained, the taxation of pensions revolves around two aspects: the tax-free pension amount and the taxable pension contributions. Simply put, double taxation occurs when a pensioner’s pension contributions that were already taxed while he was working are taxed again upon retirement.
In 2005 a new tax approach was introduced. This new system, called the deferred pension tax system, aimed to tax all pension earnings upon retirement. The silver lining on the horizon: pension contributions became tax-deductible during employment.
Who is most affected by double taxation?
The Federal Finance Court has identified specific groups that are more affected by this double taxation:
- retired since 2005
- Formerly self-employed who did not receive pension contribution subsidies from employers
- Single older people without a survivor’s pension
- Men, due to their generally shorter life expectancy compared to women
New developments from 2023 allow workers to deduct all of their pension contributions from their taxable income, a significant convenience. By 2040, the plan is to fully tax pensions, eliminating double taxation. However, there are ongoing discussions about extending this transition period to 2060.
A study of Financial expert Werner Siepe underlined that those born between 1975 and 1980 are likely to enjoy the maximum tax benefits. In contrast, individuals born between 1960 and 1990 might see fewer benefits.
How do people benefit from the adjustments to pension contributions?
according to the federal government, from January 1, 2023, it will be possible for taxpayers to claim the full amount of their pension contributions for tax purposes – a process that was actually only expected two years later. With this measure, the federal government is reducing the financial burden on citizens and intends to avoid the so-called “double taxation” of pensions in the future.
What expenses are tax deductible for pensioners?
In the coming years, the pension will be taxed during the payment period in old age. To compensate for this, costs incurred as part of old-age provision during active working life can be deducted from tax as special expenses. This has the effect of reducing the taxes that workers have to pay. This deduction affects contributions such as those to the statutory pension insurance, to the agricultural old-age fund and to occupational pension funds and the basic pension contracts, often referred to as Rürup pensions.
How much will these changes save employees?
Due to the possibility of completely deducting pension contributions, employees can probably save 3.2 billion euros in taxes in 2023 and around 1.8 billion euros in 2024.
Conclusion: The double taxation of pensions is eliminated
Retirement should mean relaxation, not tax complications. Although private pension plans can be life insurance, it’s also important to debunk retirement myths. Pensions are not paid automatically; you have to apply for it and the pension insurance number is essential for this process.
With discussions about double taxation still ongoing and potential additional tax breaks for retirees pending, it remains to be seen what exact changes will come. Until then, retirees should stay informed, understand their tax obligations and explore ways to maximize their tax savings.
2023-09-03 02:47:04
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