Pension and insurance expenses (Vorsorgeaufwendungen) are deductible as special expenses – exceptionally also where income from employment is tax-exempt under a double taxation treaty (DTT). Further exceptions are now being added.
Background
As a general rule, the deduction of pension and insurance expenses as special expenses is not permitted where they are connected with tax-exempt income.
However, for reasons of EU law, an exception applies where
- the pension and insurance expenses are connected with income earned in the EU, the EEA or Switzerland "from employment", i.e. from an employment relationship,
- this income is tax-exempt in Germany under a double taxation treaty (DTT) and
- the state of employment does not allow any tax recognition of the pension and insurance expenses.
What is changing
Following an amendment, the exception now applies beyond employee income, e.g. also to pension income or income from self-employed professional activity.
Entry into force
This applies in all open cases.
Annual wage tax adjustment for foreign income
For foreign income, the annual wage tax adjustment will be excluded going forward.
What is changing
The annual wage tax adjustment in cases of foreign income from which no domestic wage tax has been withheld will be excluded. In addition, a statutory clarification is intended to prevent circumstances arising outside the specific employment relationship from leading to exclusion of the annual wage tax adjustment.
An annual wage tax adjustment by the employer is also excluded where, during the adjustment year, different deductions were taken into account for the employee within the wage tax allowance in connection with long-term care insurance. In the relevant cases, this is intended to avoid an incorrect annual wage tax.
Entry into force
Applies retroactively from 1 January 2024.
Extension of limited tax liability
More types of income will fall within limited tax liability in future.
What is changing
Income from employment will in future also qualify as "domestic income" subject to limited income tax liability where it is granted for periods of release from work in connection with the termination of the employment relationship.
This applies where, without the release, the work would have been performed in Germany. As a result, income of employees who are neither resident nor habitually present in Germany becomes taxable.
In such cases, Germany has the right to tax this income, since the work would have been performed in Germany during this period absent the release.
Entry into force
Applies from the day after publication.
One-fifth rule for wage tax
The one-fifth rule can no longer be applied in the wage tax withholding procedure.
What is changing
At present, the tax rate reduction for certain wages (severance payments, remuneration for activities spanning several years), known as the one-fifth rule, can already be taken into account when calculating wage tax.
Because this procedure is complex for employers, it is being abolished. Employees can continue to claim the tax rate reduction in the assessment procedure.
Entry into force
Applies for the first time to wage tax withholding in 2025.
Minimum wage increase: Minijob workers can earn more from 2025
Due to the increase in the statutory minimum wage to EUR 12.82 per hour, minijob workers will be able to earn more from 1 January 2025.
What is changing
The monthly earnings threshold rises in the new year from EUR 538 to EUR 556. This threshold is regularly adjusted to the minimum wage.
With the new earnings threshold, working time of around 43 hours per month is possible in 2025. If the hourly wage exceeds the minimum wage, the permitted working time is reduced accordingly.
Entry into force
Applies from 1 January 2025.
Unemployment insurance: contribution rises for higher incomes
The unemployment insurance contribution of 2.6% is expected not to increase for 2025. Nevertheless, the burden on higher incomes will rise.
The contribution rate for unemployment insurance is currently 2.6%. This is expected to remain the case in 2025 as well.
As of 1 January 2025, however, the contribution assessment ceiling (BBG) in the pension and unemployment insurance schemes will change. Through the gradual alignment of the parameters in recent years, from 1 January 2025 there will be only a single uniform BBG for the East and West legal regions.
The increase in the contribution assessment ceiling results in an increased financial burden on employers and employees with higher incomes.
2025
2024
BBG (nationwide) EUR 8,050 ALV contribution rate 2.6%
BBG/West EUR 7,550 BBG/East EUR 7,450 ALV contribution rate 2.6%
Employer's share 2025
Employer's share 2024
EUR 8,050 x 1.3% = EUR 104.65
EUR 7,550/West x 1.3% = EUR 98.15 EUR 7,450/East x 1.3% = EUR 96.85
Social security values: contribution assessment ceilings for 2025
The expected social security values for the coming year have been determined.
Background
The regulation routinely adjusts the relevant social security parameters to the income development of the previous year. As every year, the values are set by regulation on the basis of clear statutory provisions. From 1 January 2025, the contribution assessment ceilings and the reference value will apply uniformly in the new and old federal states.
Contribution assessment ceiling 2025: health insurance
The expected contribution assessment ceiling (BBG) in the statutory health insurance (GKV) is to be EUR 5,512.50 per month (EUR 66,150 per year) in 2025. The same values apply for social long-term care insurance.
Annual earnings threshold 2025 (compulsory insurance threshold)
The general annual earnings threshold (JAEG) relevant under insurance law is to be EUR 73,800 in 2025.
For employees who, on 31 December 2002,
- were exempt from compulsory insurance due to exceeding the 2002 JAEG (EUR 40,500) and
- were covered by substitutive health insurance with a private health insurer,
the special JAEG applies. From 1 January 2025, this is to be EUR 66,150.
Contribution assessment ceiling pension insurance 2025
The BBG in the general pension insurance and in the unemployment insurance is to be set at EUR 8,050 per month, equating to EUR 96,600 per year. In the miners' pension insurance, it is to be EUR 118,800 per year or EUR 9,900 per month.
From 1 January 2025, the division of the legal regions into "East" and "West" will be abolished. Uniform parameters will then apply throughout the Federal Republic. The monthly BBG for pension insurance will therefore be EUR 8,050 nationwide from next year.
Reference value 2025
The reference value is a uniform "benchmark" for the entire social security area. It is dynamic and is adjusted to the general wage development by regulation on 1 January each year. The monthly reference value is to be EUR 3,745 per month or EUR 44,940 per year from 2025.
Health insurance contribution subsidy 2025
For employees with voluntary health insurance, the maximum employee share excluding the supplementary contribution (7.3%) to health insurance with entitlement to sickness benefit is EUR 402.41. Employers must pay a contribution subsidy of up to EUR 402.41 (7.3%). For those with voluntary health insurance, half of the individual supplementary contribution must be taken into account; for those with private health insurance, half of the average supplementary contribution applies.
Provisional average earnings, pension insurance
The provisional average earnings for 2025 amount to EUR 50,493.
Frequently asked questions
Frequently asked questions
When are pension and insurance contributions deductible as special expenses despite tax-exempt foreign income?
Pension and insurance contributions may exceptionally be deducted if the related income is earned in the EU, the EEA, or Switzerland, is tax-exempt domestically under a double taxation treaty, and the state of employment does not allow any tax recognition of these expenses. The new development is that this exception no longer applies only to employee income, but also to pension income or income from self-employed professional activity. The rule applies to all open cases.
Can the one-fifth rule still be applied to wage tax withholding in 2025?
No. From the 2025 wage tax withholding onwards, employers can no longer apply the one-fifth rule (Fünftelungsregelung) for severance payments or remuneration for multi-year activities within the wage tax withholding procedure, as the process was considered too complex for employers. However, employees can still claim the tax relief as part of their income tax return.
What is the minijob earnings threshold from 2025?
Due to the increase of the statutory minimum wage to EUR 12.82 per hour, the monthly earnings threshold for minijob employees will rise from EUR 538 to EUR 556 as of 1 January 2025. This allows for roughly 43 working hours per month; with a higher hourly wage, the permitted working time is reduced accordingly.
What are the social security contribution assessment ceilings in 2025?
As of 1 January 2025, uniform nationwide values apply. The contribution assessment ceiling (BBG) for pension and unemployment insurance is EUR 8,050 per month (EUR 96,600 per year), and EUR 9,900 per month for the miners' pension insurance. For statutory health and long-term care insurance, the BBG is EUR 5,512.50 per month (EUR 66,150 per year), with the general annual income threshold set at EUR 73,800.
When is an annual wage tax adjustment by the employer excluded starting in 2024?
Retroactively from 1 January 2024, the annual wage tax adjustment is excluded if the employee receives foreign income from which no domestic wage tax was withheld. It is also excluded if, within the standard pension allowance (Vorsorgepauschale), different long-term care insurance deduction rates were applied for the employee during the adjustment year, in order to prevent an incorrect annual wage tax calculation.
Which types of income are covered by the extension of limited tax liability?
Going forward, income from employment will also qualify as domestic income if it is paid for periods of garden leave in connection with the termination of the employment relationship and the work would have been performed in Germany without the release. This makes such payments taxable for employees who neither reside nor are habitually present in Germany. The rule applies from the day after promulgation.