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Nebeneinkünfte: Is Supplementary Income Always Tax Free?

Pupils, students, and professionals often have part-time jobs. Unfortunately, the tax authorities want to earn money from these jobs as well. We show when you have to pay tax on your additional income and which additional income remains tax-free.
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Situation for Students

The pandemic caused many students to lose their part-time jobs. If you are looking for more information on how the COVID-19 pandemic changed the job scene for students, you can read our article on this specific topic.

Whether you’re obligated to pay taxes or not depends on your secondary employment and how much you earn. Secondary income usually comes from a second job, self-employment, renting and leasing movable property, private sales transactions, or voluntary work. Different rules apply to different types of income:

Optimized for Kurzarbeit and ALG I

Have you faced short-time work (Kurzarbeit) in 2020 or 2021 and are, therefore, obligated to file your taxes? Use Taxfix and file your taxes quick and easy.

Side-job and taxes

If you have a mini-job and your average earnings from this do not exceed 450 euros per month (or 5,400 euros per year), your employer usually pays a flat-rate tax. As a result, you do not have to take the mini-job into account in your tax return.

If your employer does not apply the flat-rate income tax, you will receive an annual pay-slip and have to take care of the taxation yourself. The process works the same way as the taxation on your main income. You enter the figures in Annexe N or you choose the Taxfix app to complete the tax declaration fast, correct and easily. If your side job is a second job, your employer will pay income tax on it as usual.

However, there’s one difference: one of the two jobs is calculated according to the unfavourable income tax class 6, no matter which income tax class you fall into otherwise. In this case, we recommend always filing a tax return, as there’s high chance of earning refunds.

Supplementary income from self-employment

If you are employed in a main job, you may earn an additional income of maximum 410 euros per year as a freelancer or businessperson without paying taxes (§ 46 para. 2 no. 1 EStG (German reference). Income in this context is classified as the excess of revenue over advertising costs.

Example:

There’s a chance that earning a side income higher than the prescribed 410 euros may not be taxable. For instance, if you occasionally give private lessons, programme websites, or perform as a DJ and, as a result, you earn 700 euros per year, you may offset all income-related expenses. If you spent 300 euros a year on travel expenses and an additional 100 euros on specialised literature, your income is only 400 euros. Hence, you don’t have to declare the additional income in your tax return and don’t have to pay tax on it.

If your income exceeds this exemption limit, you must fill in Annexe S for freelance work and Annex G for business income. In this case, you have an obligation to file a tax return.

Brokering, letting and leasing of movable property

If you occasionally rent out your car, your caravan or your mobile discotheque, you’re obligated to declare these activities in your tax return. However, your income remains tax-free if it is less than 256 euros per year (§ 22 No. 3 EStG (German reference).

The same also applies if you occasionally receive commissions from brokerage transactions, for example when concluding an insurance contract or selling a property. Since the exemption limit of 256 euros is quickly exceeded, you almost always have to pay taxes on this additional income. In your tax return, you enter this income in the SO annex (other income).

If your income-related expenses are exceptionally higher than your income, a loss carry forward (Verlustvorag) or carry back (Rücktrag) Also known as loss carryover, a loss carryforward allows losses from one tax year to be carried forward into the following year(s). This can reduce taxable income, and therefore your …
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is only possible within the same type of income. This means that you cannot offset losses that you incur from renting out your caravan against the profits that your holiday home generates.

Private sales

A private sale occurs when you sell real estate or other assets within a certain period of time after acquisition. If you make a profit, it counts as income and is generally taxable.

For real estate that’s not used by the owner, the time limit is ten years (§ 23 para. 1 no. 1 EStG). For other valuables such as precious metals, jewellery, art objects, foreign currencies, coins and cryptocurrencies such as Bitcoin, the waiting period is one year (§ 23 para. 1 no. 2 EStG).

Items for daily use are exempt from this (§ 23 para. 1 no. 2 sentence 2 EStG). This also includes a privately used car, unless it is a vintage car. The same applies if you occasionally auction off old clothes, books or other articles of daily use, e.g. on Ebay.

Apart from these exceptions, you must pay tax on the profits resulting from these private sales transactions if they exceed 600 euros per year. According to § 22 No. 2 EStG, these gains fall under ‘other income’ or ‘sonstige Einkünfte’, which must be declared in Annex SO. You can only offset a loss against gains from other private sales transactions.

Voluntary activities

Voluntary work is an important part of the German community and cultural life. This is now also recognised by the legislature, which raised the tax-free allowance (§ 3 No. 26 EStG (Exercise leader allowance) to 3,000 euros per year in 2013 with the “Gesetz zur Stärkung des Ehrenamts” (BGBl I 2013, 556). The honorary office lump sum according to § 3 No. 26a EStG is 720 euros (from assessment period 2021: 840 euros) per annum.

If you are socially involved and train the professional footballers of tomorrow or look after orphaned dogs and cats in an animal shelter, you can earn up to 3,000 or 720 euros (840 euros from 2021) per year tax-free. If your income is higher, you have to declare it in Annex N. Once again, however, you are allowed to deduct the costs incurred in voluntary activities from your income. As an alternative to using the forms of ELSTER and annexes, you can try the Taxfix app, which covers such options easily and quickly by asking simple questions on your way to the tax return!

Pooja Ghosh
by Pooja Ghosh
published on: 18.08.2022
updated on: 26.08.2022

Optimized for Kurzarbeit and ALG I

Have you faced short-time work (Kurzarbeit) in 2020 or 2021 and are, therefore, obligated to file your taxes? Use Taxfix and file your taxes quick and easy.

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About Taxfix

With Taxfix you can do your tax return quickly and paperless from anywhere – both via the app on your smartphone and online in the browser. You provide information about your tax situation according to the question-and-answer principle and have your possible refund calculated. Your data will then be securely transmitted via the ELSTER interface.