What changes in 2021?

Solidarity surcharge

For 90 percent of those currently paying, the solidarity surcharge will be fully abolished from 2021. The exemption threshold below which no solidarity surcharge applies will be raised from today's EUR 972 to EUR 16,956 of the tax payment, so that no solidarity surcharge will be due in future on taxable income up to EUR 61,717. As a result, 35.5 million taxpayers will have higher net income from January.

The new, considerably extended exemption threshold is followed by a so-called mitigation zone. As is already the case today, it prevents the full solidarity surcharge from being levied immediately on the entire tax amount. A further 6.5 percent of solidarity surcharge payers will benefit from this. The mitigation zone applies to taxable income up to EUR 96,409. These amounts double for married couples.

From 2021, only investors who have used up their saver's allowance, higher earners, and GmbHs and other corporations will still pay the solidarity surcharge.

Value added tax

To support the economy during the coronavirus pandemic, the German federal government reduced VAT from 1 July to 31 December 2020. From January 2021, the standard rate of 19% will again apply, and the reduced rate will rise back to 7%.

Basic pension (Grundrente)

For a long time, the major point of dispute regarding the basic pension was whether there should be a means test. It is now finally coming – without a means test. Around 1.3 million pensioners are entitled to the supplement to top up their actual pension. The majority of them are women. However, a prerequisite for the basic pension is that you have paid into the statutory pension scheme for at least 33 years.

Contributions to the statutory pension

Those who earn more also pay more into the statutory pension scheme – but not without limit. Above a certain level of monthly gross pay, no higher contributions are required, but conversely, no higher pension is received either. This level is the contribution assessment ceiling. In 2021 it will rise from EUR 6,900 (west) and EUR 6,450 (east) to EUR 7,100 (west) and EUR 6,700 (east).

Minimum wage

From January, the statutory minimum wage will rise to EUR 9.50 per hour, and in July to EUR 9.60. Trainees will also receive more pay: their wages will rise from the current EUR 515 in the first year of training to at least EUR 550.

Hartz IV

The Hartz IV standard rates are rising slightly. A single adult will in future receive EUR 446 per month – EUR 14 more than before. The rate for young people aged 14 to 17 will rise by EUR 45 to EUR 373, and the rate for children up to five years old by EUR 33 to EUR 283. For children aged 6 to 13, an increase of one euro is planned, bringing the rate to EUR 309 per month.

Child benefit and child supplement

From January, families can benefit in several ways. Not only is child benefit rising, but also the child supplement for families on low incomes. Child benefit will increase by EUR 15 per child, and the child supplement by EUR 20.

Basic and child allowances rising

Part of income always remains tax-free. This basic allowance will rise in 2021 from EUR 9,408 to EUR 9,696.

From the 2021 assessment period, the child allowance will be raised from EUR 2,586 to EUR 2,730 per parent. The childcare allowance will rise from EUR 1,320 per parent to EUR 1,464. This results in an increase of the allowances serving the tax exemption of the child's subsistence minimum from currently a total of EUR 7,812 by EUR 576 to a total of EUR 8,388 for each eligible child.

Single parents

Those raising children alone may claim a so-called relief amount for income tax purposes, i.e. an additional tax allowance. This normally amounts to EUR 1,908 for the first child. However, due to the coronavirus crisis, it was already raised in 2020 – to EUR 4,008. This rule will be retained in 2021. A further EUR 240 is added for each additional child.

Higher housing benefit

To compensate for higher costs for petrol, heating oil and gas, the state will pay higher housing benefit from January. It will be around EUR 15 more per month, with an additional EUR 3.60 per further household member.

Motor vehicle tax rises

For cars with high fuel consumption and CO2 emissions of more than 195 grams per kilometre, motor vehicle tax will rise. The surcharge will then be twice as high. By contrast, for emissions of less than 95 grams of CO2 per kilometre, it will become cheaper.

New commuter allowance

In 2021, the distance allowance will increase. Instead of 30 cents, taxpayers may deduct 35 cents per kilometre from the 21st kilometre onwards for the one-way commute to work on their 2021 tax return. For the first 20 kilometres, the rate remains 30 cents.

Disability lump-sum allowance

The following measures are planned to adjust the disability lump-sum allowances and to simplify taxation:

• doubling of the disability lump-sum allowances,
• introduction of a disability-related travel cost lump-sum allowance of EUR 900 for those with walking and sight impairments and EUR 4,500 for more severe impairments,
• waiver of additional eligibility requirements for granting a disability lump-sum allowance where the degree of disability is less than 50, and
• updating of the degrees of disability in line with social law, so that in future a disability lump-sum allowance will be taken into account from a degree of disability of at least 20.

In addition, the care lump-sum allowance, as personal recognition of home care, will rise from the current EUR 924 to EUR 1,800. A care lump-sum allowance of EUR 600 and EUR 1,100 respectively will in future also be granted for care levels 2 and 3.

Additional contribution to statutory health insurance

The additional contributions of the statutory health insurance funds will rise in 2021. Each health insurance fund decides individually on the exact amount, but there is a benchmark figure. The Federal Ministry of Health has raised this by 0.2 points to 1.3 percent as of 1 January.

Changing health insurance funds

If the additional contribution is increased, the special right of termination may be exercised. But even apart from this, changing between health insurance funds will become considerably easier. On the one hand, the minimum contract term will fall from 18 to 12 months; on the other, no notice of termination will be required at all. You only need to declare your accession to the new insurer. Your new health insurance fund will handle the rest.

Certificate of incapacity for work (AU)

Much in the healthcare sector is set to become more digital. This also applies to the certificate of incapacity for work (Arbeitsunfähigkeitsbescheinigung, AU for short). The copy for the health insurance fund will become superfluous from January. The AU will be transmitted electronically directly from the doctor's practice to the health insurance fund.

Electronic patient record

Identity card becomes more expensive

Your patient record will also become digital – if the patient wishes. From January, the statutory health insurance fund must at least offer the electronic patient record (elektronische Patientenakte, ePA). However, the patient decides whether to make use of it and which data will be stored in it.

The cost of the identity card is also rising. However, the cost of a new chip card, which is generally required every ten years, is not increasing by a few cents but by EUR 8.20. Instead of EUR 28.80, EUR 37 will be charged. Younger applicants, whose ID card is only valid for six years, will pay EUR 22.80.

Higher housing construction bonus

To receive the housing construction bonus, you pay regularly into a building society savings contract. From 2021, up to EUR 700 per year for single persons and EUR 1,400 for couples will be subsidised. Currently, the figures are EUR 512 for singles and EUR 1,024 for married couples. Of course, more may be saved. However, no additional subsidy is granted on amounts above these limits.

From 2021, the housing construction bonus will amount to 10 percent (currently 8.8 percent) of the contributions paid in during the year. So, for example, if a single person transfers EUR 700 to a building society savings contract, the state will in future give them EUR 70 per year. For married couples paying in EUR 1,400, this amounts to EUR 140.