Hardness compensation

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Hardship compensation is a term used in German tax law . It denotes a tax reduction that is granted in certain borderline cases. In the case of income subject to income tax, from which a tax deduction from wages has not been made, a hardship compensation acc. 46 Paragraph 3 EStG or in accordance with Section 46 (5) in conjunction with Section 70 EStDV. This is necessary because when assessing employees - as also arises from Section 46 (2) No. 1 EStG - no income tax is to be paid on the income indicated if it is EUR 410 or less, and also because a gradual transition is required if the stated income exceeds 410 euros.

General application

The hardship compensation is only to be carried out if the sum of the income not subject to wage tax deduction exceeds the amount of 410 euros. This exemption limit according to Section 46 (2) No. 1 EStG serves to simplify and only when this exemption limit is exceeded is an ex officio income tax assessment for other income carried out. If the so-called ancillary income of an employee is lower, this income is not taxed. There are two basic cases of hardship compensation:

  1. Compensation for hardship in accordance with Section 46 (3) EStG
  2. Compensation for hardship according to Section 46 (5) EStG in conjunction with Section 70 EStDV

Compensation for hardship in accordance with Section 46 (3) EStG

An amount equal to the income from which the tax withheld from wages has not been deducted must be deducted from income if this income does not total more than 410 euros. From this regulation the general general statement is derived that you can earn up to 410 euros "on the side" without paying taxes. The deduction amount can be between 1 and 410 euros. This also applies to the joint assessment of spouses. The exemption limit is assessment-related, i. This means that it does not increase in the case of joint assessments and is available to each spouse in the case of separate as well as special assessments.

Example 1 : Single taxpayer A has income from Section 19 EStG amounting to 35,000 euros and income from Section 18 (1) No. 1 EStG amounting to 380 euros.

Solution 1: According to Section 46 (2) No. 1 EStG, an assessment does not have to be carried out because the income from Section 18 EStG does not exceed 410 euros.

Example 2: Single taxpayer A has income from Section 19 EStG amounting to 35,000 euros and income from Section 18 (1) No. 1 EStG amounting to 380 euros. As a wage tax deduction feature of the A is an allowance i. S. d. Section 39a (1) of the EStG.

Solution 2: According to Section 46 (2) No. 1 EStG, an assessment is not to be carried out because the income from Section 18 EStG does not exceed 410 euros. Irrespective of this, however, an assessment must be carried out in accordance with Section 46 (2) No. 4 EStG. When carrying out this assessment, according to Section 46 (3) EStG to deduct an amount of 380 euros from income as compensation for hardship.

Example 3: The income of a spouse is 27,000 euros. In addition to wages, there is only interest income of 375 euros. The income from which the tax was not deducted from wages is the interest income. The amount is less than 410 euros. The hardship compensation is 375 euros, i.e. the 375 euros are not taxable.

Compensation for hardship according to Section 46 (5) EStG i. V. with § 70 EStDV

To compensate, the hardship compensation according to § 46 Abs. 5 EStG in connection with § 70 EStDV serves. While the additional income is completely tax-free up to 410 euros, the tax-free amount is gradually reduced for additional income between 410 euros and 820 euros. The tax-free amount of 410 euros is reduced by the difference between the additional income and 820 euros. Since the additional income is included when the 410 euro limit is exceeded, without a special regulation the curious result would be that an employee (A) with 409 euros of additional income would not pay any taxes, while another employee with additional income of 411 euros would pay an additional one would hit a significant tax burden, although he earns only 2 euros more than A.

Example 1:

Hardship compensation for the individual assessment of the spouse

The wife shows ancillary income of 600 euros, the husband 410 euros. No hardship compensation can be granted within the framework of the joint assessment because the additional income must be added together and then exceed the limit of 820 euros. If the spouses apply for an individual assessment of spouses, a hardship compensation of 220 euros is set for the wife, and an exemption of 410 euros for the husband. In individual cases, however, the spouses must carefully check whether the individual assessment of the spouses leads to disadvantages in the area of ​​the tariff that exceed the advantages of hardship compensation. It should be noted here that income always represents a net figure. If z. B. Additional income of 600 euros and related advertising costs of 200 euros are incurred, the income is 400 euros and is subject to hardship compensation.

Example 2:

As above example, but the interest income is now 620 EUR. The indicated income is between 410 euros and 820 euros. The reduced hardness compensation is calculated as follows:

Additional income: 620 euros

Hardship compensation: 200 euros (820–620 euros)

Taxable additional income: 420 euros (620–200)

Additional income subject to income tax (euros) Hardship compensation to be deducted from the additional income (Euro) After that, additional income is actually taxed (euros)
0-410 410 0
450 370 80
500 320 180
550 270 280
600 220 380
650 170 480
700 120 580
750 70 680
800 20th 780
820 0 820

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