Maximize Your Tax Savings with Advance Payments on Health Insurance Contributions

17.10.2023

leeway in the law

The Income Tax Act allows advance payments of health insurance contributions up to three times the annual amount. This means that contributions up to and including 2026 can be brought forward this year. The deadline is December 21st for the tax authorities to receive the tax bonus for this year.

The insurance companies set an earlier deadline for receipt of payment, usually December 15th. However, the variable structure of the payment of basic health insurance contributions is reserved for self-employed people, freelancers, civil servants and employees who are privately or voluntarily insured by law.

The double tax saving effect

By paying PKV contributions in advance, two wonderful tax effects can be achieved. The first tax savings arise for the year of the advance payment by bundling the health insurance contributions. It has a significant tax effect because contributions can be deducted in unlimited amounts.

The second tax bonus applies to subsequent years, as additional personal insurance contributions that would otherwise be ignored for tax purposes can be claimed up to the maximum tax limit. This simple tax trick allows you to optimally deduct insurance premiums and achieve double-digit returns. How big the tax savings are depends on the personal tax rate, the type of assessment and the contribution model for the PKV.

Pension expenses under the microscope

The law distinguishes between basic contributions to health and nursing care insurance and other pension contributions. This includes all insurance that affects life and limb, such as liability, accident, occupational disability, nursing care, supplementary health, dental or term life insurance. Elective benefits for private health insurance are also anchored here. In principle, it is permissible to deduct these from taxes as special expenses. They reduce the taxable income and thus the income tax and, if applicable, the church tax and the solidarity. But unfortunately the practice looks different.

The reason for this is that the total special expense deduction is limited to 1,900 euros per year for employees with employer subsidies and civil servants with subsidies and to 2,800 euros per year for self-employed people. As a result, the maximum amount is regularly used up with the basic health insurance, which is treated with priority for tax purposes, and the other pension insurance policies are not taken into account for tax purposes.

However, there is one exception: the basic health insurance contributions are excluded from these maximum limits and can be set at the actual amount of expenditure. And that’s exactly where the tax trick comes in. It can be used to avoid the fact that the basic contributions block the other insurance contributions.

Implementation of the tax savings model

If you are considering making an advance payment, you should take care of it in good time. Apart from the deadlines mentioned, your own liquidity must be checked and the personal tax advantage calculated. Due to the numerous components, such as tax rate, type of assessment, amount of health insurance contributions and number of additional insurance policies, the tax advantage can be calculated in advance by a tax advisor or income tax helper.

If it is worthwhile in an individual case, you should definitely contact your own health insurance company in advance to find out what options and conditions it offers. In the best case scenario, you can save even more. Some health insurance companies offer their policyholders a premium discount or discount for advance payments. Depending on the private health insurance, up to five percent is possible. This discount also includes the employer’s contribution. A later PKV contribution adjustment does not affect the tax saving model. If the insurance is canceled, excess contributions paid will be refunded, so no problem.

The employer’s share must also be paid in advance. So a certain amount of equity is necessary to take on the tax office. Otherwise nothing changes with the employer subsidy. As before, it will be paid out monthly and returned to your wallet. As before, it remains tax-free and must be deducted from the special tax expenses so that there is no double tax exemption.

When does the tax saving model become profitable?

This savings model is interesting for single people or married people where both spouses have private health insurance. In order for it to be fully implemented, both spouses must make use of the option of advance payment. It is particularly worthwhile in years when the marginal tax rate is high, for example triggered by a severance payment or special payment.

It is not very profitable if one spouse is privately insured and the other is legally insured. For those with statutory health insurance, the contributions are paid monthly by the employer and thus fill the maximum tax amount in the following years as usual. The tax savings are therefore limited to the year of the advance payment.

In principle, the contributions do not have to be made for three years in advance if your own liquidity does not allow it. An advance payment for just one or two years is also conceivable. However, the tax advantage is then reduced considerably.

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