Income from pension

When are pensioners required to submit a tax return?

A pensioner is required to submit a tax return 2021 if their total income exceeds the annual tax allowance. In 2021, the tax allowance is 9.744 Euro for single persons and 19.488 Euro for married couples.

Taxable income for pensioners that must be declared includes private and state pensions (Form R), as well as rental and capital income (Form V and Form KAP) and much more.

Not every Euro of the state pension is part of a pensioner's taxable income. This means that if you receive a state pension of 1.500 Euro per month, you do not have to pay tax on the entire annual sum of 18.000 Euro. The actual amount of the taxable pension depends on the year in which the employee retired. The taxable portion is 50% of the pension amount for all pensioners of 2004 and for those who retired in 2005, regardless of age. Those who retired in 2006 had to pay tax on 52% of the pension amount. For retirement in 2020, the taxable portion is 80%, and for retirement in 2021, it is 81%.

The taxable portion is applied in the year of retirement and the second year of receiving the pension. The remaining amount in the second year is the personal pension allowance, which remains tax-free for life. From the third year onwards, the pension is fully taxable after deducting the personal pension allowance and the standard allowance for income-related expenses of 102 Euro. The constant pension allowance means that pension increases from the third year onwards are fully taxable.

Example: For Manfred Mustermann, who retired in 2005, the taxable pension is 50%. Like all pensioners who retired by 2005, he receives an allowance of 50%. This is not taxable and remains unchanged for life.

For Mr Mustermann: If he received a pension of 20.000 Euro in 2005, his allowance is therefore 10.000 Euro. This annual allowance remains constant until the end of his life. The married pensioner Mustermann and his wife have no other income. Therefore, they do not have to submit a tax return. Together, they remain below the tax allowance of 19.488 Euro (2021). If Max Mustermann were single, it would be different. With 10.000 Euro taxable annual pension, he would be above the tax allowance of 9.744 Euro (2021) and would therefore have to submit a tax return. If both spouses are above the tax allowance, they must each submit a separate form.

(2021): When are pensioners required to submit a tax return?

Rente mit 67: Im Jahre 2017 steigt die 6. Stufe für den Jahrgang 1952

In 2021, those born in 1956 will turn 65 and reach the previous statutory retirement age of 65. It's time to retire. However, in 2012, the "retirement at 67" was introduced for new retirees, and specific limits must be observed.

Standard retirement age: The standard retirement age has been gradually raised from 65 to 67 since 2012, initially by one month per birth year and from 2024 by two months per birth year. This means that the 1946 birth year was the last to retire without deductions at the age of 65 in 2011. Therefore, those who reached the statutory retirement age of 65 in 2012 could only receive their pension without deductions one month later. This was the 1947 birth year. For example, someone born on 15.02.1947 would not receive their pension from 01.03.2012 but from 01.04.2012.

On 01.01.2021, the 10th stage comes into effect: those turning 65 in 2021 must work or wait 10 months longer to receive their statutory pension without deductions. This applies to those born in 1956.

Note: For example, someone born on 15.02.1955 would not receive their pension without deductions from 01.03.2020 but from 01.12.2020.

Pension for those with particularly long insurance periods: From 01.07.2014, those who can prove at least 45 contribution years may or could receive their old-age pension at 63 without deductions. For those born between 1953 and 1964, the retirement age of 63 is gradually being raised to 65. The increase has been in steps of 2 months per birth year since 2016. In 2021, those born in 1958 will turn 63. Those with 45 insurance years can receive their pension at 63 plus 12 months, i.e., at 64. Insured persons born on or after 01.01.1964 can only claim the pension without deductions with 45 contribution years at 65 - they no longer benefit from the temporary special regulation.

Pension for those with long insurance periods: Those who can prove 35 contribution years can take early retirement at 63 with the "old-age pension for those with long insurance periods", but must accept lifelong deductions. The number of deduction months increases in line with the standard retirement age for those born from 1949 onwards.

In 2021, those born in 1958 can receive their pension at 63 with a lifelong pension deduction of 10.8%.

Disability pension: The old-age pension for severely disabled people is available to men and women who are severely disabled at the start of the pension and have completed the minimum insurance period (waiting period) of 35 years. Those born in 1958 can receive the pension without deductions at 64. The earliest the pension can be drawn is at 61, but with a deduction of 10.8%.

Reduced earning capacity pension: In the case of full reduction in earning capacity, the reduced earning capacity pension can be claimed before the standard retirement age without pension deductions. In 2021, a pension due to reduced earning capacity is paid without deductions only at 64 years and six months. If drawn earlier, pension deductions of 0.3% per month must be accepted, but no more than 10.8%.

From 2031, those with reduced earning capacity will be treated as if they had worked until the standard retirement age, according to the evaluation of their credit period. The credit period ends at the age of 67. The same applies to pensions due to death. The extension is also transferred to the farmers' pension scheme.

The credit period ends at the latest when the standard retirement age is reached. If the deceased insured person was entitled to a reduced earning capacity pension at the time of death, a credit period is only taken into account for a subsequent survivor's pension to the extent that it was credited in the previous reduced earning capacity pension.

Note: The benefit improvements only favour new reduced earning capacity pensions granted from 01.01.2019. They do not apply to those already receiving a reduced earning capacity pension on 01.01.2019. Existing pensions are not recalculated.

Widow's or widower's pension: The age limit for receiving the large widow's or widower's pension is being gradually raised from 45 to 47 years between 2012 and 2029. The steps of the increase are initially one month per year from 2012 to 2023 and two months per year from 2024 to 2029.

If the insured person dies in 2021, the age limit for the large widow's or widower's pension is 45 years and 10 months. The large widow's or widower's pension amounts to 60% of the deceased spouse's old-age pension calculated at the time of death. The pension type factor is therefore 0.6. Widows or widowers under 45 years (plus x months) are entitled to a small widow's or widower's pension after the death of the insured spouse. This amounts to 25% of the deceased spouse's old-age pension calculated at the time of death, with a pension type factor of 0.25. Upon reaching the age of 45 plus 10 months, the small pension is converted into a large widow's or widower's pension.

Regarding pension taxation: For pensions starting in 2021, the taxable portion of the pension is 81%. The taxable portion is taxed in the year the pension begins and in the second year of receipt. The remaining amount in the second year is the personal pension allowance, which remains tax-free for life. From the third year, the pension is fully taxable after deducting the personal pension allowance and the standard allowance for income-related expenses of 102 Euro.

(2021): Rente mit 67: Im Jahre 2017 steigt die 6. Stufe für den Jahrgang 1952

Which pensions must be declared in the tax return?

Pensions are generally subject to income tax. There are different tax rules:

• Pensions taxed with the new taxable portion, more precisely: fully taxable after deduction of the personal pension allowance. This applies to all pensions from the statutory pension insurance, the "Rürup" pension, and pensions from professional pension schemes.
• Pensions taxed with the favourable yield percentage. This applies, for example, to pensions from private pension insurance.
• Pensions taxed with the special yield percentage according to § 55 EStDV. This applies to life annuities with a fixed term, e.g. occupational or disability pensions from private insurance.
• Pensions fully taxable as "other income". This mainly concerns the state-subsidised Riester pension and the non-compliant use of Riester contracts, as well as benefits from occupational pensions whose contributions remained tax-free, e.g. from pension funds, pension schemes, and direct insurance.
• Pensions fully taxable as "income from employment". This applies to civil service pensions, company pensions from a direct commitment or support fund, as well as corresponding survivor benefits. These pensions are not to be entered in "Anlage R", but in "Anlage N".
• Pensions that are fully tax-free, e.g. pension from statutory accident insurance. You do not need to declare these pensions in the tax return.

(2021): Which pensions must be declared in the tax return?

Which pensions do not need to be declared in the tax return?

Pensions are generally subject to income tax.

However, some types of pensions are completely tax-free and do not need to be declared. These include:

• Pensions from statutory accident insurance (e.g. occupational injury pensions),
• War and disability pensions,
• Monetary pensions paid directly as compensation for suffering under Nazi or GDR injustice.

Compensation pensions for increased needs, loss of maintenance and services, as well as pain and suffering pensions, are not considered income.

(2021): Which pensions do not need to be declared in the tax return?

Which pensions are taxable?

Most pensions are subject to tax. This includes old-age pensions and disability pensions, (large and small) widow's or widower's pensions, orphan's pensions, company pensions (from direct insurance), and pensions from life insurance policies. Different tax rules apply depending on the type of pension.

You do not need to pay tax on a pension received from statutory accident insurance (occupational accident insurance), a war pension, a severe disability pension, a reparation pension, a compensation pension for loss of maintenance under § 844 (2) BGB, a thalidomide pension, a pension for victims of SED injustice, a compensation pension for HIV-infected or AIDS-affected individuals, or a lifelong lottery pension.

(2021): Which pensions are taxable?

Which allowances can pensioners use?

Retirees who submit an income tax return can enter various allowances and incurred costs to reduce their taxable income.

Personal pension allowance
The pension allowance is determined in the second full year of receiving the pension. In the year the pension begins and in the second year, the pension is taxed at the so-called taxable rate. The remaining amount in the second year is the personal pension allowance, which remains tax-free for life. From the third year onwards, the pension is fully taxable after deducting the personal pension allowance and the standard allowance for income-related expenses of 102 Euro.

Allowance for civil servants and company pensioners
Like the pension allowance, the allowance for civil servants and company pensioners will gradually decrease to zero percent by 2040. This allowance only applies to pensions and company pensions from direct commitments and support funds. In addition, pensioners receive a supplement to the allowance, which also decreases over time.

Here are the figures for pension start in 2020:

If you retire in 2021, the allowance for you is 15.2% of the pension payments, up to a maximum of 1.140 Euro, and the supplement to the allowance is 342 Euro. Together with the standard allowance for income-related expenses of 102 Euro, the payments are tax-free up to 1.584 Euro for life.

The retirement relief amount can be used by retirees or pensioners who receive additional income or wages alongside their pension. Additional income includes, for example, income from renting, capital assets, self-employment, private sales transactions, or Riester pensions. However, the tax office first deducts various amounts (saver's allowance, income-related expenses allowance). The amount of the retirement relief depends on the retiree's year of birth.

If you turned 64 in 2020 (born between 02.01.1956 and 01.01.1957), the retirement relief amount for you is 15.2% of the income, up to a maximum of 722 Euro from 2021 for life.

If you turn 64 in 2021 (born between 02.01.1957 and 01.01.1958), you will receive a retirement relief amount of 14.4%, up to a maximum of 684 Euro from 2022 for life.

Standard allowance for income-related expenses
For the pension, every taxpayer receives a standard allowance for income-related expenses of 102 Euro per year.

Special expenses
Contributions to statutory health and long-term care insurance can also be entered as special expenses in the "Anlage Vorsorgeaufwand" by retirees. Retirees receive a health insurance subsidy from their pension insurance provider, which must be deducted from the contributions. Donations can be deducted as special expenses for tax purposes. The collected donation receipts thus reduce the taxable income. If you do not donate or have no other special expenses, the tax office deducts a flat rate of 36 Euro.

Extraordinary burdens
Particularly for older and sick people, extraordinary burdens can arise that reduce taxable income. This could be accommodation in a nursing home, employing a domestic help, or hiring a tradesperson. But also medical expenses, such as medication, glasses, or dental prostheses, can be claimed by retirees.

Mini job
If a retiree (over 65 years) takes on a 450-Euro job, this income is tax-free for them.

(2021): Which allowances can pensioners use?