Contributions to health and long-term care insurance that have been reimbursed to the taxpayer are subject to offsetting or addition under § 10 (4b) sentences 2 and 3 EStG, even if they result from a reversal or retroactive modification of the social insurance relationship. The rules under § 10 (4b) EStG that must be observed in the case of a contribution reimbursement are set out below on the basis of a recently decided BFH ruling.
Statutory Framework: Contribution Reimbursements under § 10 (4b) EStG
Where the taxpayer receives reimbursements of contributions in respect of expenses under § 10 (1) Nos. 2 to 3a EStG, these are to be offset against the expenses claimed under the corresponding number for the assessment year (§ 10 (4b) sentence 2 EStG). If, following this offset, a reimbursement surplus remains within the expenses under § 10 (1) Nos. 3 and 4 EStG, this surplus is to be added to the total amount of income (§ 10 (4b) sentence 3 EStG).
The reason for the contribution reimbursement is irrelevant in this context.
The Dispute: Contribution Reimbursements for Several Years Following Social Court Proceedings
The plaintiffs are married and were jointly assessed to income tax for the year in dispute, 2017. In the 2017 assessment period, the plaintiff received pension payments, while the plaintiff's wife received a pension from the statutory pension insurance scheme.
In addition, in 2017, the X health insurance fund paid the taxpayer a reimbursement of basic health insurance and long-term care insurance contributions for the years 2003 to 2016 in the amount of EUR 39,509.40. The reason for this was a case decided in the taxpayer's favour before the social court in that year. According to this decision, the plaintiff had been wrongly assessed as a voluntary member of the health insurance scheme during the reimbursement period; in fact, she had met the requirements for compulsory insurance. As a result, the social insurance relationship was retroactively amended.
Contrary to the plaintiffs' view, the tax office captured the contribution reimbursement under § 10 (4b) EStG and initially offset it against the health and long-term care insurance contributions paid in the assessment year (§ 10 (4b) sentence 2 EStG). The remaining reimbursement surplus of EUR 37,719 was then added to the total amount of income (§ 10 (4b) sentence 3 EStG). The plaintiffs lodged an objection against this decision, taking the view that contribution reimbursements resulting from a change in the insurance relationship are not subject to § 10 (4b) EStG.
BFH Decision (Judgment of 22 March 2023, X R 27/21): Contribution Reimbursements Must Be Taken into Account under § 10 (4b) EStG
Both the fiscal court and the BFH decided the case in favour of the tax office.
As a matter of principle, the term "reimbursed expenses" within § 10 (4b) EStG is to be interpreted broadly. Expenses include all outlays in money or money's worth that reduce the taxpayer's assets. Reimbursements within the meaning of § 10 (4b) sentences 2 and 3 EStG constitute a reversal of such outlays in money or money's worth, which are added back to the taxpayer's assets. The factual or legal reason for the inflow is irrelevant. With particular regard to the case at hand, neither the interpretation nor the case law on § 10 (4b) EStG provides any indication that contribution reimbursements should be excluded merely because they are based on a retroactive change in insurance status.
No Retroactive Amendment of Assessments from the Years in Dispute under §§ 173 et seq. AO
The amended § 10 (4b) EStG, in force since 1 January 2012, serves to simplify the treatment of contribution reimbursements. Accordingly, reimbursement surpluses remaining after offsetting against expenses in the assessment year no longer need to be offset retroactively against the expenses of the years of payment, which would otherwise require amendment of final tax assessments. Instead, reimbursement surpluses are now added to the total amount of income pursuant to § 10 (4b) sentence 3 EStG. This avoids considerable administrative effort.
No Breach of the Constitutional Prohibition on Retroactivity
The rules under § 10 (4b) sentences 2 and 3 EStG, in force since 2012, apply to all reimbursements received by the taxpayer after 31 December 2011 that fall within the scope of § 10 (4b). Reimbursements are therefore included in the offsetting and/or addition mechanism even where they relate to expenses incurred by the taxpayer in an earlier assessment period prior to that date.
Frequently asked questions
Frequently asked questions
How are refunded health and long-term care insurance contributions treated for tax purposes?
Under § 10 Abs. 4b Satz 2 EStG, contribution refunds must first be offset against expenses of the same type paid in the year of the refund. If a refund surplus remains for contributions under § 10 Abs. 1 Nr. 3 and 4 EStG, it is added to the total amount of income pursuant to § 10 Abs. 4b Satz 3 EStG. The reason for the refund is irrelevant.
Must retroactive contribution refunds from social court proceedings be reported under § 10 Abs. 4b EStG?
Yes. In its ruling of 22 March 2023 (X R 27/21), the BFH held that contribution refunds resulting from a reversal or retroactive modification of the social insurance relationship are also subject to the offsetting and add-back mechanism of § 10 Abs. 4b EStG. The term "refunded expenses" is to be interpreted broadly; the legal basis of the refund is irrelevant.
Are final tax assessments amended in the case of retroactive contribution refunds?
No. Since the revision of § 10 Abs. 4b EStG effective 01.01.2012, the assessments of the original payment years are no longer retroactively corrected. Instead, refunds are offset in the year of inflow or, where they exceed contributions, added as a refund surplus to the total amount of income. This avoids administrative effort.
Does applying § 10 Abs. 4b EStG to prior years violate the prohibition of retroactivity?
No. The rules in force since 2012 apply to all reimbursements received after 31 December 2011, even if the underlying contributions were paid in earlier assessment periods. The BFH does not consider this a violation of the constitutional prohibition of retroactivity.
What qualifies as a "reimbursed expense" within the meaning of § 10 Abs. 4b EStG?
Reimbursed expenses include all returns in cash or cash equivalents that increase the taxpayer's assets and represent a reversal of previous expenditures. The term is to be interpreted broadly; the factual or legal reason for the inflow is irrelevant. Reimbursements resulting from a change in insurance liability also fall under this definition.