Glossary

Allowance

In tax law, an allowance is a monetary amount that is deducted from your gross income to calculate your taxable income. The taxes you owe each year are calculated based on your taxable income.

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Annual payslip

Also known as “income tax certificate” or “wage tax certificate”, the annual payslip is a form your employer(s) will give you at the beginning of each year. It gives a full outline of the previous tax year’s financial information; including your gross income, paid taxes, or social security charges.

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Basic tax-free allowance

The basic allowance makes all income up to a certain amount tax-free; based on the subsistence level (minimum amount of money a person needs to live) in Germany. This amount can potentially change each year.

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Child allowance

Parents are also granted a child allowance for each child. This allowance can be deducted from your gross income to ensure that the basic needs for survival and education of your child(ren) are met.

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Child benefit

The child benefit is a monthly payment from the government that parents in Germany can apply for, regardless of their income – this is meant to ensure that every child’s basic needs are covered. The conditions and the overall amount vary depending on age, current education, and the number of children in the household. Child benefits are relevant to your tax return because the tax authorities will consider them regardless of whether or not you applied for them.

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Civil partnership

A civil partnership is a legally recognized relationship between two people offering the same tax benefits as conventional marriage.

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ELSTER

ELSTER is the tax offices’ interface for receiving and handling digital tax returns. When you handle your digital tax return with Taxfix, we use this official hub for the paper-free transmission of your tax declaration to the responsible tax office (Finanzamt).

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Federal Training Assistance Act

The Bundesausbildungsförderungsgesetz (usually referred to as BAföG) is a law which – among other things – regulates federal student grants and loans. For that reason, BAföG has also become a synonym for these types of student loans.

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Income-related expenses

Any expenses incurred in the acquisition, securing, and maintenance of income – meaning expenses directly connected with your work. They are deducted from your taxable income and therefore reduce your overall tax liability.

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Income-splitting

Income-splitting is the process by which a partnered couple (married or in a civil partnership) can take advantage of the progressive tax system by adding their income together, dividing it by two, and then using the resulting monetary average to determine a potentially more favorable tax rate.

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Loss carryforward

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 overall tax liability as job situations change, and losses are off-set in a future tax return.

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Lump sum

A lump sum or flat-rate amount is a minimum amount that gets deducted as expenses when calculating your taxes. This lump sum reduces your overall tax liability without the need to provide evidence of individual expenses.

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