One of the German government's central plans is to abolish the solidarity surcharge for the vast majority of taxpayers from 2021 onwards. It appears that the abolition of the solidarity surcharge is on its way: the federal government's draft bill "on the reduction of the solidarity surcharge" entered parliamentary deliberation with its first reading on 24 October 2019. During the debate, Federal Finance Minister Olaf Scholz emphasised the purpose of the solidarity surcharge at the time of its introduction, namely to support the economic success of German reunification. Since its introduction, the federal government has collected EUR 275 billion from it, while investing EUR 383 billion for the purposes of German reunification in the same period. Since then, the financing tasks have steadily decreased, yet they are by no means complete. On this basis, the Federal Finance Minister explained why the solidarity surcharge cannot be abolished entirely, despite the expiry of the Solidarity Pact between the federal and state governments at the end of 2019. By limiting it to high and very high incomes, the tax revenue from the solidarity surcharge will be reduced by roughly half. Any taxpayer (in the case of individuals) who pays no more than EUR 16,956 in income tax per year is to be fully exempt from the solidarity surcharge. For jointly assessed spouses, the threshold is doubled to EUR 33,912. According to the federal government, around ninety percent of those who previously paid the solidarity surcharge will be affected and will therefore benefit from the planned legislative change. For a further five percent of payers, the burden of the solidarity surcharge will likewise be reduced.
Frequently asked questions
Frequently asked questions
When is the solidarity surcharge set to be abolished for the majority of taxpayers?
Under the German federal government's draft legislation to scale back the solidarity surcharge, the abolition is scheduled to take effect from 2021. The bill entered parliamentary deliberation with its first reading on 24 October 2019. For the vast majority of those currently paying the surcharge, it will be eliminated in full.
Up to what income tax amount will the solidarity surcharge be fully eliminated in the future?
Individuals paying no more than EUR 16,956 in income tax per year are to be fully exempt from the solidarity surcharge. For jointly assessed spouses, the threshold doubles to EUR 33,912. This exemption limit will relieve the majority of those who previously paid the solidarity surcharge.
How many taxpayers will benefit from the planned solidarity surcharge reform?
According to the German Federal Government, roughly 90 percent of previous solidarity surcharge payers will be fully exempted. A further 5 percent will see their burden reduced. Only taxpayers with high and very high incomes will continue to pay the surcharge in full.
Why is the solidarity surcharge not being abolished entirely?
Federal Finance Minister Olaf Scholz justified retaining it by noting that the financial obligations relating to German reunification are decreasing but have not yet been completed. Since the introduction of the solidarity surcharge, the federal government has collected EUR 275 billion in revenue but has invested EUR 383 billion for purposes related to German reunification. Despite the expiry of the Solidarity Pact at the end of 2019, the Soli will therefore continue to be levied on top earners.
How much will tax revenue from the solidarity surcharge decline as a result of the reform?
By limiting the surcharge to high and very high incomes, tax revenue from the solidarity surcharge will be reduced by roughly half. The federal government is thus forgoing a significant portion of its previous revenue in order to relieve the broad majority of taxpayers.