It often hits companies and private individuals alike unprepared. We are talking about the tax arrears, which the tax office uses to demand taxes in the context of a tax return. Even retirees may be affected. Depending on the amount of the requested amount, those affected often get into financial distress. For entrepreneurs and freelancers, the additional payment often has a life-threatening effect. This is because, from the taxpayer’s point of view, the payment period is limited to one month. The following article deals with the typical case constellations that can justify a tax arrears payment. Clyde Griffiths points out options for action that taxpayers can use to avoid financial problems.
Possible reasons for an additional tax payment
Straight employees expect a refund of the filing of a tax return. For them, the requirement of a tax arrears even more surprising than for self-employed and entrepreneurs who are quite used to additional payments on tax claims.
For employees, the choice of certain tax classes can lead to additional tax demands. If you have more than one employer or have another job in addition to your employment, you may expect a tax rebate. The reason for this is that the need to take into account specific allowances from different activities resulted in a tax that was too low for the whole year.
For self-employed, freelancers and companies, the obligation to repay often results from the fact that sales have developed better in one year than anticipated. In this case, the corresponding advance payments were set too low during the current year. As a result of tax audits , there may be additional demands for taxes.
The additional tax payment for employees
Not all employees have to file a tax return. One differentiates the so-called compulsory assessment with the obligation to submit a tax return from the application assessment . The latter can be taxed within 4 years.
The state relinquishes a compulsory assessment of employees who are excluded from paying too little tax. This concerns the average worker who has no other income than that from his employment. Often it comes to overpayment of the tax. The reason is that the withholding tax has to be paid by the employer as withholding tax and the taxes can be clearly determined during the transfer.
The obligation to file a tax return is therefore a clear indication that there may be a request for tax. The following employee groups must regularly submit a tax return:
- Anyone who receives income without payroll deduction or wage replacement benefits of more than 410 euros. These include supplementary top-up contributions for partial retirement, the receipt of multiple wages and parental allowance.
- If spouses earn wages and have selected the tax class combinations III / V or IV / IV. The prerequisite in these cases is that both spouses have worked.
- If spouses have not opted for the combined assessment and wish to deviate from the standard half of the apportionment allowance or disability lump sum.
- For special special payments .
- Change of employer if special payments have been made in the year in question which the new employer did not take into account.
- If a marriage has been divorced or a partner has died and one of the spouses enters into a new marriage in the same year.
- If allowances have been taken into account in the tax deduction .
- When considering a spouse on the income tax card who lives in other EU countries .
- If the domicile is located abroad and unlimited tax liability was chosen in Germany.
- If the employee receives additional income from a freelance or self-employed activity.
The choice of tax classes for spouses
If spouses choose tax classes III and V for spouse splits , this can lead to additional tax claims. This is worthwhile if one of the spouses earns more than 60 percent of the total income. Additional payment is made when the actual distribution of the total income in advance can not be taken into account for tax purposes when choosing this tax code combination. In calculating the payroll tax to be deducted from the splitting tables, the payroll tax is calculated as a function of the total income of the couple. Since the employer may not collect the data on the wages of the other spouse, the payroll tax is often not paid in the correct amount and must be paid after filing the tax return.
When choosing the combination of tax code IV and IV with the so-called factor procedure with spouses one has to deal with a similar constellation. To transfer a correct payroll tax, a so-called factor is determined, which is less than 1 and represents an approximate value for the correct payroll tax. With this factor, the company deducts the income tax over the year. The factor does not always ensure correct taxation, so it often comes with this combination for tax arrears.
Type of income: What should be considered for several employers?
Employees who work for several employers are often affected by an additional tax payment because in most cases it is not possible to calculate the tax liability correctly in advance. The same applies all the more if an employee carries out an independent part-time job.
Tax arrears due to allowances
In the case of registered allowances , which was previously determined by the tax office for income tax deduction, changes occur over the course of a year that could not have been anticipated. Therefore, the corresponding allowance, which relates, for example, to travel costs to work or childcare costs, is not entered in the correct amount. In some cases, the taxpayer has received too high a tax credit over the year, which must be offset by a late payment of taxes.
The Progressionsvorbehalt and the tax arrears
The so-called “progression reservation” compensates for the fact that the receipt of tax-free benefits has increased the total income of the household . In this context, a higher tax rate must be applied. The Progressionsvorbehalt thus leads to the request for tax. In the Federal Republic of Germany, the receipt of social benefits under § 32 b EStG (Income Tax Act) is not taxable. It eliminates the corresponding payments such as sickness benefit or parental allowance of progression.
Tax arrears for entrepreneurs and self-employed
Entrepreneurs and self-employed persons are required to pay dues and are regularly required to submit their tax returns. The tax office will fix the advance payments based on the next year’s tax return. As these advance payments will not be adjusted during the current year, additional income will be paid as planned, as planned. Entrepreneurs and the self-employed can regularly adjust to this additional payment, if they observe their sales over the current year exactly . They are expected to provide adequate reserves to service this tax claim.
In many cases, tax offices carry out so-called external audits or company audits . In doing so, corresponding tax issues of previous years are subjected to a detailed examination. In this context tax credits or deductions are often taxed differently than before. This can lead to high tax demands.
Who would like to raise an objection to the additional tax payment, should observe the deadlines.
Tax arrears: most important steps
After receipt of a tax assessment with a subsequent payment, the person concerned should keep calm.
Examination of the tax assessment
Anyone confronted with a tax arrears notification should check the tax assessment for accuracy. In some circumstances, it may be necessary to consult a tax adviser.
Since German tax law is a highly complex field, errors in tax assessments can not always be ruled out . According to statistics, two-thirds of all appeals against tax assessments succeed. When checking the error of a tax assessment you should go through it line by line and look at the explanations closely.
It is particularly important to pay attention to the following points:
- Are the receipts correctly stated , are there any turntables?
- Are deduction amounts such as income- related expenses or allowances in the correct amount taken into account?
- Are possible prepayments and deducted tax amounts correctly stated?
Payment term also in case of faulty notice
If the examination results in a corresponding error in the decision, the payment deadline for the additional payment of one month from the announcement of the tax return must be observed. The objection to the tax assessment has no suspensive effect. The tax authorities are among the most unpleasant creditors imaginable. They have many options for foreclosure , and they charge interest on late payments of 6 percent per annum. As far as interest rates are concerned, there may be an advantage in having taxpayers ‘taxpayers’ advice. In many cases, with the help of the tax adviser, it is possible to lower interest rates to 2 percent.
The options for action with a tax back payment
In many cases, those affected by a tax arrears have no access to appropriate financial resources. Consequently, they lack the money to service the tax claim. What can you do now?
Reduction of the additional payment amount by reducing the tax prepayments
If the taxpayer gets into financial distress through the repayment of the tax, it is important to keep a cool head and to check where money can be saved. Saving amounts may arise, for example, from a request for reduction of the current advance payment . Tax prepayments are often part of the tax repayment because the tax office assumes that the higher profits generated in a year continue in the following year. The taxpayer should enclose with his application for a reduction of the current advance payment the following information:
- The determination of profits of the previous tax year
- The expected earnings determination of the current year
- A written justification why the profit is expected to decrease for the current year.
Note If a plausible reasoning is presented, the tax office must reduce the current advance payments, which can reduce the additional payment amount.
Apply for deferment and installment
It is possible to ask the tax office for a installment payment or to obtain a payment delay. In principle, every taxpayer can apply to the tax office for payment of a specific tax liability or payment of installments. The decision lies in the discretion of the tax office. This checks whether the collection by the due date represents a considerable hardship for the tax debtor . As a rule, the corresponding deferment should be granted against the provision of a security. However, the tax offices usually waive the provision of this security for smaller deferred contributions.
The concept of considerable hardness is an indeterminate legal concept that can be interpreted.
In the assumption of a considerable hardness, a decision is made between personal and factual reasons . A personal reason, for example, is a temporary debt-free payment difficulty. A factual reason is given when there is a short-term offsetting option with another tax to be refunded.
Regular lack of financial capacity is not recognized as significant. Even if the tax office pays the payment, deferred interest is charged.
Make additional payment through a quick credit
Under certain circumstances, it is easier and safer for the taxpayer to take care of a corresponding financing opportunity in the short term and to pay the additional tax due in due time. The state-regulated online loan helps to bridge bottlenecks with short terms and good terms.
Collaborate with a tax accountant
In many cases, it makes sense in financial difficulties to turn on a tax accountant. The latter can advise the taxpayer and make a forecast as to whether applications for deferred payment or installment payments to the tax office could succeed . In many cases, the negotiations with the tax authorities are easier and more successful with the involvement of a tax consultant.
Additional tax payment for specific groups of persons
People with receipt of parental allowance
When referring to parental allowance, the dreaded progression reservation must be observed. In this case, an appropriate additional payment may be made.
Parents can avoid the additional payment by applying for the individual assessment of the spouse for the period of parental allowance. As a result, each parent pays their income at the base rate. Since the parent who receives parental benefit has no other income, the individual does not have to pay any taxes. The working spouse pays tax on his own income – he does not have to fear any additional payment for parental benefit.
People with receipt of the pension
Retirees can also be affected by a tax arrears. In principle, they are subject to the tax declaration obligation if they receive income in excess of the basic allowance. This was in 2017 at 8,820 EUR per person. For pensioners whose spouse or partner is a worker and who are jointly assessed, there is a compulsory assessment . In order to avoid additional payment for this constellation, an application for individual assessment of the spouse is also possible until the time when both retirees have become. The same applies to pensioners who have asserted a loss carryforward. They too have to file a tax return. A tax arrears for retirees occurs when the person concerned has withdrawn from his obligation to submit a tax return and the tax office estimates the taxable amount. Retirees should therefore keep an eye on their tax obligations.
People during the separation year and tax back payment
A separation between spouses has an impact on the tax assessment, including the form of assessment and the tax rate. In the year of the separation, the conditions of spousal assessment under § 26 (1) EstG still apply . The spouses may choose whether they want to be jointly or separately.
Complications in the tax assessment can occur when, for example, one of the spouses subsequently applies for separate assessment. This leads to the other spouse to a corresponding high repayment claim for taxes. At this point, family law and tax law aspects overlap.
Spouses in the year of separation is recommended to push for clear arrangements from the outset.
People in partial retirement
The so-called top-up amount provides people with partial retirement with additional tax refunds. Semi-retirement means that the employee has opted for a gradual transition to retirement. He will halve his working time for a while, but will receive much more money than a typical half-time worker. This is based on the fact that the employer pays him a so-called top-up amount. This top-up amount is tax-exempt, but generally increases the tax rate on total income that must be taxed at the end. As during the year tax is paid only for the regular salary without the top-up amount, tax arrears are paid.
Objection to the tax assessment in the case of tax arrears
When is the objection to the tax return notice useful?
The objection to a tax assessment is useful if the taxable person’s income is not correctly stated or deductions such as income tax expenses have not been taken into account .
A distinction must be made between the objection to the tax assessment and an application for an amendment to the tax assessment notice . The latter is recommended if the taxpayer has a single change request, for example because he wants to submit a specific document. In contrast to the objection, the request for amendment of the tax assessment can be made on the telephone.
How to succeed in an appeal against the tax assessment?
Note The objection will be made in writing within one month of the announcement of the tax assessment.
When calculating the deadline, please note that this is extended to the next working day , insofar as the deadline falls on a Saturday, Sunday or public holiday. The same applies to the day of the announcement of the tax assessment.
Note also that one can appeal with the so-called re-establishment of the previous state after the expiration of the month term. A claim for restitutio in the previous state exists, if the tax office has not explained deviations from the tax declaration in writing in the tax assessment.
The requirement of written form is satisfied if the objection in text form reaches the tax office by post, e-mail, fax or the Elster portal . Basically, there is also a possibility in a fax transmission to prove the appropriate delivery of the claim.
Note The objection is substantiated.
It is important that the notice of opposition contains the taxpayer’s tax code and indicates the relevant tax assessment notice. If the opposite is the case and the tax office has reimbursed too little money, an objection can also be filed.
How can the tax office react to the objection?
The tax office can remedy the tax bill on the objection of the taxpayer. This means that the decision is changed in favor of the taxpayer . In addition, the Office may partially remedy this or reject the opposition in the opposition decision. The tax authorities also have the possibility, by means of a so-called obstruction, to tighten the rules in the tax assessment and to correct the tax assessment to the detriment of the taxpayer.
There are more problems with the processing time for the appeal. As a rule, tax offices have to decide on the objection within 6 months. Otherwise, the taxpayer has the option of the so-called “inaction” action against the tax authorities.
If the revenue authority has not remedied or dissuaded the appeal, the appeal decision may be challenged by a lawsuit before the Financial Court.