In order to finance the social system, everyone who works in Germany has to give a part of their income to the state. While employees pay income tax on their salary every month, freelancers pay their income tax with quarterly prepayments and a final payment at year-end.
Freelancers are legally obliged to declare their previous year's income so that the tax office (Finanzamt) will be able to calculate the income tax they have to pay. Unlike many employees (who often only have one employer during a tax year and no additional income), freelancers usually do have many clients as well as a fluctuating income and thus are legally obliged to submit an income tax return.
How is the income tax return usually structured for freelancers?
Profit & Loss statement (EÜR)
As a freelancer, you start with the profit & loss statement (in german called Einnahme-Überschuss-Rechnung, in short EÜR), which is a summary of your annual income and expenses from freelance related work. The profit calculated in the EÜR has to be entered in your income tax return.
Next, in order to prepare your income tax return, you must provide some personal data and information for the tax office:
Personal tax ID, which is used to identify you uniquely by the tax office and consists of 11 digits
Your up to date address to which you will receive the tax assessment after the Finanzamt has reviewed your income tax return
Your bank account details in case of a refund
💡 It also helps to check your bank statements in order to spot some personal related expenses.
In addition to declaring your income, the income tax return allows you to claim a couple of possible private expenses. In the section for personal expenses, you can enter your contributions to your health insurance, expenses for your pension, and other precautionary insurances.
In Germany, freelancers have to look after their pensions themselves, since for them having a pension scheme is optional. And yet some pay voluntarily into the German pension insurance or join a private pension insurance.
In this case, freelancers can deduct the basic insurance costs of the old-age provision as special expenses. In 2019, 88% of the payments are deductible, up to an assessment limit of 24.305€. This means that the tax authorities will recognise a maximum of 21.388€ of the expenses as special expenses.
The income tax return consists also of further sections in which you can claim private expenses, which may reduce your tax burden:
Household-related expenses such as handcraft services or cleaning staff
Donations such as to national charities or political parties
Paid church tax if you are a member of a church
Academic education if you are a student or a trainee
Sickness-related costs if they are above your reasonable burden limit calculated based on your total income
What happens if I have additional income?
If you have additional income, you will need to include further sections in your income tax return:
Income from employment
Income from investments
Income from renting and leasing
Income from abroad
Income from government grants like unemployment benefit or pension payments
Income from employment
As an employee, you will need to fill in the information from your annual salary statement (Lohnsteuerbescheinigung) given to you by your company. In addition, you are allowed to deduct costs related to your work at the company (Werbungskosten) like trips to work, work equipment, software, training costs, or relocation costs.
💡 When entering an additional income from salary, the tax office automatically deducts 1.000€ of employment expenses for singles or 2.000€ for jointly assessed married couples or registered partners. Only if your employment-related expenses exceed this amount it makes sense to declare all your costs in detail.
What if I am married or have children?
From the year of the marriage, the couple can choose between declaring taxes together or separately. In cases, when only one spouse has income or the income of the two spouses is different a joint declaration can help reduce the tax burden.
In a joint declaration, the two spouses only have to submit one income tax return. Yet, some sections still have to be submitted twice. If both partners are for example freelancers, both of them must submit a profit & loss statement (EÜR).
In most cases, the rates that apply to singles are doubled for spouses, e.g. the tax-free amount for married couples is 18.336€ in 2019 and 18.816€ in 2020.
If you have children, you will need to add another section to your income tax return. Based on this section that the tax office can determine whether you are entitled to child allowance or other child benefits. Childcare costs such as accommodation costs for kindergarten can be entered and claimed here.
When do I need to pay my income tax?
The deadline to hand in your income tax return for 2020 is the 31st of October 2021. Usually, it takes 3-6 weeks till you receive a letter from the tax authorities in which they tell you what you have to pay or get back. After that, you have 4 weeks to file an objection or to make the payment.
What if have I already paid quarterly prepayments for the income tax?
If your current tax assessment shows a payment of more than €400, the tax office will set an annual amount that you must pay each quarter as a prepayment. When submitting your income tax return for that year, the prepayments will be deducted from your total income tax payment.
For example, let's assume that in 2019 you have paid a prepayment of 100€ to the tax office every quarter. Furthermore, let's assume that you have submitted your income tax return and your tax burden is 600€. Hence, the prepayments will be deducted from your income tax payment and you only have to pay 200€ to the tax office.
💡 If your total income was below a tax-free amount (9.168€ in 2019 and 9.408€ in 2020) no income tax is due. Income that exceeds the basic tax-free amount must be taxed.
Sorted tax guides are provided without liability and do not replace a tax advisor.
To get an accurate answer for your specific case, please consult a tax advisor.
You can get additional help from your dedicated tax advisor on Sorted.
Looking for a solution to declare your income tax return? With Sorted you can easily record any additional income and your contributions to health insurance, pension, or any other special expenses while it automatically sends the income tax return for you.