Meaning of Income Tax Part 2

Income tax exemption – non-taxable income

As a taxpayer, you can possibly be completely exempt from tax liability . But this is only possible if the total income is below the tax-free subsistence level. This can be requested from the responsible tax office. In most cases, it is sufficient to list all income as well as income-related expenses and allowances.

If the tax-free income is likely to be so low in the following years, you can also apply for a non -assessment certificate . This is valid for up to three years and can also be submitted to the bank. This eliminates the exemption order for interest income.

In addition, special regulations must be observed for retirees . For example, an exemption must be entered on the tax card for taxation and the income must be over 10,200 euros. The special case of self-employed pensioners is handled differently again, as it depends on the additional earnings limits.


In the Income Tax Act (EStG) , the various types of income (from commercial operations, self-employed and non-self-employed work …) are regulated in Section 2, Paragraph 1, Clause 1, No. 1 to 7 EStG . There is also income that is tax-exempt . The basic allowance is as mentioned above 9,408 euros for a single person and 18,816 euros for married couples. These benefits (such as sick pay or housing benefit) are listed in Section 3 EStG .

There is also a section called tax exemptions . This includes income that still has to be deducted from taxable income. For example child allowances, relief contributions for single parents or basic contributions to secure the subsistence level.

Income tax for entrepreneurs: Deductible business expenses

According to Gradinmath, the income tax is also on the entrepreneurs taxable income calculated. Business expenses are defined by the fact that they are operationally necessary. This means that without these expenses, the company would not be able to do as much as it needs to be. Claims for damages can also count as business expenses, and business-related expenses are costs for losses suffered by a taxpayer as a result of his activity (e.g. a freelancer who suffers from an occupational disease and had expenses to restore his health). Business expenses are divided into “ immediately deductible ” and “ not or not fully deductible ”.

Among the deductible operating expenses include the following:

  • Expenses for staff
  • Depreciation costs
  • Rental costs
  • Ride costs
  • Purchases of goods and services
  • Deductible input tax
  • VAT paid
  • Vehicle fleet costs

Business expenses reduce profit and lower the taxable income of the entrepreneur.

Calculate the amount of income tax

To calculate the income tax , all income of the taxpayer from one year is used. The assessment base on which the calculation is based results from adding up this income . The following steps are necessary for the calculation:

  1. Addition of all types of income
  2. Deduction of all business expenses, advertising costs and extraordinary expenses as well as allowances (including pension expenses )
  3. Deduction of exemptions for children and hardship compensation
  4. The result is the taxable income is
  5. Determination of income tax according to the basic table or splitting table
  6. Deduction of already paid wage tax or advance payments

The result of this calculation is an additional payment or a refund of the tax amounts.

The solidarity surcharge (Soli) is to be paid regardless of the amount of income and amounts to 5.5 percent of the income that has to be taxed. The soli surcharge is levied for tax classes I, II, IV, V and VI if the wage tax levied there is over 972 euros per year or if the wage tax in class III is more than 162 euros per month .

Members of the Catholic or the Protestant church to pay again church tax , this is between five and nine percent of taxable income. The federal states determine the exact amount.

Income tax rates

The income generated is the basis for the income tax to be paid. This is due from an annual income of 9,408 euros and is staggered in different progression zones . As income increases, the applicable tax rate and thus the tax burden increase .

Take a look at the detailed basic income tax table 2020 now . It contains the list of tax rates for the corresponding income and includes the solidarity surcharge and church tax in the calculation.

Example of calculating income tax

In § 2 EStG is exactly determined which income is taxable and what amounts and special editions These must be reduced to the taxable income increase.

An example for 2020 : A married couple with separate assessment and income of 25,000 euros / year, without church tax liability.

Tax Tax rate Marginal tax rate
Income tax € 3,713.00 14.85% 28.41%
Solidarity surcharge € 204.22 0.82% 1.56%
Church tax 0.00 € 0.00% 0.00%
Total load € 3,917.22 15.67 % 29.97 %

Source: finanzrechner.org

Allowances 2020

If you want to calculate income tax, you can claim the following allowances :

Allowances for 2020

Basic tax allowance € 9,408 (single) or € 18,816 (married)
Savers allowance € 801 (single) or € 1,602 (for married couples)
Pension allowance 20% of the pension drawn
Child allowance € 7,812
Relief amount for single parents € 1,908 + € 240 for each additional child
Allowance for training 924 €
Retirement benefit 760 € (16% of gross income)
Allowance for trainers € 2,400
Allowance for volunteer work t 720 €
Exemptions for heirs, gifts, etc.
  • Spouse / registered partner: € 500,000
  • Children: € 400,000
  • Grandchildren: € 200,000
  • Grandparents and Parents: € 100,000
  • Other relatives, other people: € 20,000
Business tax € 24,500

You can find a detailed explanation and further tips on these amounts in our article Tax allowance in self-employment !

Income Tax 2