Pension taxation: How much tax do pensioners pay?
Unfortunately, pensions are not tax-free, but must be taxed at least in part if they exceed certain thresholds. In this article, we explain under which circumstances pensioners have to pay taxes, how much they can be and what the pension allowance is all about.
When do I have to pay taxes as a pensioner?
Whether you have to pay taxes as a pensioner depends on various factors. The pension allowance and the basic allowance are particularly decisive:
- The pension allowance determines how large the taxable part of your pension is. It depends on the calendar year in which you received your first pension (see below).
- The basic allowance determines the so-called subsistence minimum. If the taxable part of your pension is within this range, you pay no tax. If your pension exceeds the basic tax-free amount, everything below this amount still remains tax-free. You only pay tax on the pension that is above the basic allowance. In 2020, the basic tax-free amount for single people is 9408 euros per year. For married couples it is set at 18,816 euros. Every two years at the latest, it will be reviewed whether the subsistence minimum will be raised.
You pay taxes on your pension if your taxable income exceeds the basic tax-free amount.
How much is the pension allowance?
The pension allowance is the part of the pension that does not have to be taxed. This can be higher or lower, depending on when you started your pension. The relevant year is the calendar year in which you first received your pension. Since 2005, the pension allowance has been steadily decreasing; at that time, it was set at 50 percent. If you retired in 2017, you still have a pension allowance of 26 percent; in 2020 it will only be 20 percent. Those who receive their first pension in 2030 will only have a pension allowance of ten percent. In 2040, the pension allowance will be abolished altogether, which means that anyone retiring in 2040 or later will have to pay tax on their entire pension if it exceeds the basic tax allowance.
The pension allowance is set as a euro amount at the beginning of your pension and then remains permanently unchanged. This means that your taxable income increases with pension increases.
It is not easy to calculate the pension allowance. However, you can ask your pension insurance institution to send you a certificate showing the amount.
How high are the taxes for pensioners?
The so-called "deferred taxation" has applied to pensions since 2005. This means that as long as you are still working and investing money in your pension, this money remains tax-free. On the other hand, pensions are increasingly taxed at a later date. Over the decades, this is advantageous for most people, because income in retirement is usually lower than in working life.
How much tax you pay depends on how much income you have in total. This includes, for example, money from self-employment, rental income or additional income from other sources. As with employees and the self-employed, the higher your income, the higher the tax rate. If your income exceeds the basic tax-free amount, the same tax rates are applied as for persons in employment.
Additional income: Do I have to pay tax on additional income as a pensioner?
It has already been mentioned in the text: Yes, you have to pay tax on income in addition to your pension if your income minus the pension allowance exceeds the basic allowance. An exception applies to mini-jobs. This means that additional income of up to 450 euros per month does not have to be taxed separately, even if it exceeds the basic tax-free amount. All other income is taken into account, for example
- Rental income
- Interest income
- Income from jobs or self-employment
- Company pensions and private pensions
If you receive a full statutory pension, i.e. you have reached the retirement age, you can increase your pension without limit and without having to fear deductions. However, in the case of the early pension from 63, the widow's and widower's pension and the reduced earning capacity pension, there are limits on additional earnings. If you exceed these limits, your pension will be reduced. So find out in advance exactly what the additional income means for you financially. In all cases, you will pay tax if your total income exceeds the basic tax-free amount.
As a pensioner, do I also pay church tax?
Whether you have to pay church tax as a pensioner depends on whether you have additional income and how much it is. Normally, no church tax is due on a pension alone. The reason: church tax depends on the income tax return. If you do not have to pay income tax, you do not pay church tax. This applies to low-income earners, for example, but also to pensioners. It is different if you have additional income or a very high pension and therefore have to file an income tax return. In that case, you may still have to pay church tax, usually at a rate of eight to nine percent.
And as a pensioner, do I still have to pay the solidarity surcharge?
Like church tax, the solidarity surcharge depends on your income tax return. This means: If you are not liable for income tax, you do not pay the solidarity surcharge. If you have to pay income tax because of a high pension or additional income, then the solidarity surcharge is also due. It is currently 5.5 percent.
From 2021, however, things are likely to change with regard to the solidarity surcharge: Then new regulations will come into force that will only require the solidarity surcharge for a few groups of people. Around 90 percent of people will then presumably no longer pay the solidarity surcharge. This should also affect the vast majority of pensioners. However, at the moment it is not yet clear exactly how this decision will affect everyday life. This partial abolition of the Soli, which was decided in 2019, is causing some criticism. However, one thing is clear: those who have not had to pay the Soli up to now will not have to pay one after 2021. And for a great many people, the Soli will then probably cease to apply.
