Progressionsvorbehalt calculator
Zitat von firenow am 26. Dezember 2020, 23:12 UhrHey everyone, I hope you are having great holidays. I need to understand progressionsvorbehalt and I was hoping you guys can help me. I read that Germany raises your income tax rate if you have income on which you already paid tax in another country. In my case its USA. My taxable income in Germany (self employed) is only $ 4000 while the income on which I paid taxes in US is about $ 14000. Can you guys kindly guide me how much will I have to pay in taxes for 2020?
I'm married with no kids. I wonder if I should file separately or file jointly with my wife? Her taxable income in Germany is around 35000 euros.
If I choose to file separately, do I pay no taxes since $$4000 is under my personal allowance?
Taxable Income (Self Employed) $ 4000 Already taxed in US $ 14,000 Dividends $ 1576
Hey everyone, I hope you are having great holidays. I need to understand progressionsvorbehalt and I was hoping you guys can help me. I read that Germany raises your income tax rate if you have income on which you already paid tax in another country. In my case its USA. My taxable income in Germany (self employed) is only $ 4000 while the income on which I paid taxes in US is about $ 14000. Can you guys kindly guide me how much will I have to pay in taxes for 2020?
I'm married with no kids. I wonder if I should file separately or file jointly with my wife? Her taxable income in Germany is around 35000 euros.
If I choose to file separately, do I pay no taxes since $$4000 is under my personal allowance?
| Taxable Income (Self Employed) | $ 4000 |
| Already taxed in US | $ 14,000 |
| Dividends | $ 1576 |
Zitat von TheWanderer am 27. Dezember 2020, 11:15 UhrIn the following I will asume an USD - EUR rate of 1:1 to make things easier:
Your income tax is calculated as your personal average tax rate * income, where income is everything you have to pay income tax for in Germany (in your case: $5576(*), but not your $14000). As Germany (like the US) have a progressive income tax rate, your average tax rate rises with your income. Progressionsvorbehalt means that some income types (probably including your $14000) will be included to calculate your average tax rate. In your case average tax rate for $19576 (2020, no Kirchensteuer, no Splitting) is 11,42% and you would pay $5576 * 11,42% = $636.
Without Progressionsvorbehalt you would pay nothing, as average tax rate for $5576 is still 0%. The purpose of Progressionsvorbehalt is to make sure people pay tax rates fitting to their financial strength, even if larger parts of their income are tax free in Germany. Income from foreign countries is just one case, there are a lot more common cases, as Arbeitslosengeld I, Kurzarbeitergeld, Krankengeld, Elterngeld...
Here is a calculator with explications in detail. Their tax rate is the virtual tax rate for your income under Progressionsvorbehalt (in your case: 4,54%):
https://www.smart-rechner.de/progressionsvorbehalt/rechner.php
(*) If your average tax rate would be > 25% you would better file your dividends income seperately with Kapitalertragssteuer instead of regular income tax.
In the following I will asume an USD - EUR rate of 1:1 to make things easier:
Your income tax is calculated as your personal average tax rate * income, where income is everything you have to pay income tax for in Germany (in your case: $5576(*), but not your $14000). As Germany (like the US) have a progressive income tax rate, your average tax rate rises with your income. Progressionsvorbehalt means that some income types (probably including your $14000) will be included to calculate your average tax rate. In your case average tax rate for $19576 (2020, no Kirchensteuer, no Splitting) is 11,42% and you would pay $5576 * 11,42% = $636.
Without Progressionsvorbehalt you would pay nothing, as average tax rate for $5576 is still 0%. The purpose of Progressionsvorbehalt is to make sure people pay tax rates fitting to their financial strength, even if larger parts of their income are tax free in Germany. Income from foreign countries is just one case, there are a lot more common cases, as Arbeitslosengeld I, Kurzarbeitergeld, Krankengeld, Elterngeld...
Here is a calculator with explications in detail. Their tax rate is the virtual tax rate for your income under Progressionsvorbehalt (in your case: 4,54%):
https://www.smart-rechner.de/progressionsvorbehalt/rechner.php
(*) If your average tax rate would be > 25% you would better file your dividends income seperately with Kapitalertragssteuer instead of regular income tax.
Zitat von firenow am 27. Dezember 2020, 15:21 UhrThank you so much @thewanderer
This makes perfect sense. I wonder what do you mean by no splitting? I couldn't understand that from google search. Also does this mean I should not file with my wife? Because that would raise our total income tax rate?
I also wonder what happens if I have no taxable income in Germany? Do I still have to pay tax here again from my already taxed income or I can simply tell FinanzAMT, that I have no taxable income in Germany.
So what happens if I have zero taxable income because I still have to buy laptop and phone for work and few other business related expenses. I will do it before December 31st to get my taxable income to as low as possible
But I can only spend my self employment income. Still have to pay 25% on dividends which becomes 400 euros.
Thank you so much @thewanderer
This makes perfect sense. I wonder what do you mean by no splitting? I couldn't understand that from google search. Also does this mean I should not file with my wife? Because that would raise our total income tax rate?
I also wonder what happens if I have no taxable income in Germany? Do I still have to pay tax here again from my already taxed income or I can simply tell FinanzAMT, that I have no taxable income in Germany.
So what happens if I have zero taxable income because I still have to buy laptop and phone for work and few other business related expenses. I will do it before December 31st to get my taxable income to as low as possible
But I can only spend my self employment income. Still have to pay 25% on dividends which becomes 400 euros.
Zitat von TheWanderer am 27. Dezember 2020, 16:23 UhrZitat von firenow am 27. Dezember 2020, 15:21 UhrThank you so much @thewanderer
This makes perfect sense. I wonder what do you mean by no splitting? I couldn't understand that from google search. Also does this mean I should not file with my wife? Because that would raise our total income tax rate?
"no splitting" meant that my tax calculation example above would apply to a single, childless person filing just for himself, to keep it simple. I don't know the details of filing together / Ehegattensplitting and thus I won't recommend you anything regarding this aspect.
I also wonder what happens if I have no taxable income in Germany? Do I still have to pay tax here again from my already taxed income or I can simply tell FinanzAMT, that I have no taxable income in Germany.
So what happens if I have zero taxable income because I still have to buy laptop and phone for work and few other business related expenses. I will do it before December 31st to get my taxable income to as low as possible
if you had zero taxable income in Germany, you would not pay any income tax here. As I stated above, you have to pay (average tax rate * taxable income). If taxable income is zero so is your overall income tax. Progressionsvorbehalt effects your average tax rate, which has no effect either, as long as you have no taxable income.
But I can only spend my self employment income. Still have to pay 25% on dividends which becomes 400 euros.
If your personal tax rate is low, you can ask Finanzamt to calculate your dividend tax with your personal tax rate instead of 25%, whatever is better for you. (you should google "Günstigerprüfung für Kapitalerträge" for details). However, I don't know if you are allowed to reduce even your dividend income with your self employment expenses. Guess you can't.
Zitat von firenow am 27. Dezember 2020, 15:21 UhrThank you so much @thewanderer
This makes perfect sense. I wonder what do you mean by no splitting? I couldn't understand that from google search. Also does this mean I should not file with my wife? Because that would raise our total income tax rate?
"no splitting" meant that my tax calculation example above would apply to a single, childless person filing just for himself, to keep it simple. I don't know the details of filing together / Ehegattensplitting and thus I won't recommend you anything regarding this aspect.
I also wonder what happens if I have no taxable income in Germany? Do I still have to pay tax here again from my already taxed income or I can simply tell FinanzAMT, that I have no taxable income in Germany.
So what happens if I have zero taxable income because I still have to buy laptop and phone for work and few other business related expenses. I will do it before December 31st to get my taxable income to as low as possible
if you had zero taxable income in Germany, you would not pay any income tax here. As I stated above, you have to pay (average tax rate * taxable income). If taxable income is zero so is your overall income tax. Progressionsvorbehalt effects your average tax rate, which has no effect either, as long as you have no taxable income.
But I can only spend my self employment income. Still have to pay 25% on dividends which becomes 400 euros.
If your personal tax rate is low, you can ask Finanzamt to calculate your dividend tax with your personal tax rate instead of 25%, whatever is better for you. (you should google "Günstigerprüfung für Kapitalerträge" for details). However, I don't know if you are allowed to reduce even your dividend income with your self employment expenses. Guess you can't.
Zitat von firenow am 27. Dezember 2020, 16:27 UhrThank you this is very helpful.
Yes I can only decrease my self employed income to let's say after buying laptop and a print, my new taxable income is $ 1000. So I will have to pay my new tax rate on (1600 + 1000).
Thank you this is very helpful.
Yes I can only decrease my self employed income to let's say after buying laptop and a print, my new taxable income is $ 1000. So I will have to pay my new tax rate on (1600 + 1000).
