This blog was published by the Tax Foundation.
Germany’s income system is complex. While many Scandinavians get mailed comprehensive pre-filled tax returns and only have to check whether they are correct, the average German taxpayer spends 9 to 10 hours and over €100 filing their tax return. Even though most taxpayers in Germany only have wage income, the main source of complexity lies in the numerous deductions offered by the German income tax code.
In Germany, you can (in principle) deduct all work-related costs from the income tax base. This ranges from the cost of work-related materials like laptops or stationery (even if they are partly used for private purposes) to the cost of commuting to work or even of keeping a second apartment near your workplace for long-distance commuters. This requires Germans to collect receipts; as each train or parking ticket, work-related lunch, or even pen is deductible, one needs to keep the receipts to be able to deduct the costs from one’s tax return. While taxpayers can choose between this type of itemizing and a standardized deduction option, itemizing is very common. Tax authorities then have the burdensome task of checking millions of tax returns where such items are filed.
The extent of Germany’s deductions makes it an outlier in this regard. For example, countries like the United States and the United Kingdom have significantly more restricted systems. In the US, deductions are typically confined to expenses that exceed a high threshold. In the UK, deductions for employees are almost non-existent; costs must be wholly, exclusively, and necessarily incurred for the job to qualify. Most other countries also do not allow deductions for the costs of commutes to work, a home office, work materials, professional memberships and union fees, a bank account, or job application materials like photos or CV printing. Tax returns are easier to fill in, and no receipts need to be kept.
Read the full blog
© Tax Foundation