Are you wondering what the taxation of additional income depends on and whether it can be tax-free? In this article, you will learn in which situations you have to pay tax on additional income – and when no tax is due.
Taxes on additional income – what does the tax obligation depend on?
The obligation to pay or not pay taxes on additional income in Germany depends on two factors: the additional employment and the final amount of earnings. Additional income usually results from:
- a side job,
● self-employment
● renting and leasing movable property,
● private sales transactions,
● volunteer work.
Different rules apply to each of these types of income in Germany, which we will discuss below.
Tax-free additional income and mini-jobs
Anyone in Germany who holds a mini-job where the average earnings do not exceed 556 € per month or 6672 € per year is obliged to pay a so-called flat-rate tax. Therefore, you are not required to declare mini-jobs in your tax return. You can learn more about this in our previous article “Mini-jobs in Germany – do they have to be declared in the tax return?”. However, if your employer does not deduct flat-rate wage tax, you will receive an annual payslip and must handle the taxation yourself. The procedure is the same as for taxing your main income. It’s best to fill out the tax return using the intuitive and free German tax return app Taxando, which allows you to do this quickly and without unnecessary formalities. If your side job is a second job, it is your employer who pays income tax on it. However, note a distinction – one of the two jobs is taxed under the unfavorable tax class 6, regardless of which tax class you belong to. Therefore, we recommend you submit your tax return, with which you have a good chance of a refund.
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Tax-free additional income from self-employment
In self-employment at the main workplace, it is possible to earn additional income of up to 410 euros per year as a freelancer or self-employed person without paying taxes (according to § 46 Abs. 2 Nr. 1 EStG). The income is classified as surplus of revenue over advertising expenses. However, it is possible to avoid a taxable profit if certain amounts are exceeded through advertising expenses. When is this the case? If you occasionally give tutoring lessons, for example, and earn 700 € per year, you can deduct all expenses related to this income. If you spend, for instance, 300 € a year on travel expenses and 100 € on specialized literature, your taxable profit is only 400 €. If your profit from part-time self-employment is below the tax exemption limit, it remains tax-free but must still be declared in the tax return. If you exceed the exemption limit, you are required to submit a tax return and fill out Annex S (for freelance income) or Annex G (for commercial income).
Tax-related additional income – renting and leasing movable property
If you rent out your car or caravan, you must declare an additional activity in your German tax return. These incomes are tax-free if they do not exceed the amount of 256 € per year (according to § 22 Nr. 3 EStG). This rule also applies if you receive a commission for brokerage transactions (e.g., when concluding an insurance contract or selling a property). Since the exemption limit can be easily exceeded, it is necessary in most cases to tax the resulting additional income. These incomes are entered in Annex SO of the tax return. If the advertising expenses are significantly higher than the income itself, a carryforward of losses or a loss restitution is only possible within the same type of income. This means that offsetting losses from renting a caravan with profits from a holiday apartment is not possible.
Tax exemption aside income and private sales
A private sale occurs when you decide to sell real estate or other assets within a specifically defined period after acquisition:
- 10 years for non-owner-occupied assets (according to § 23 Abs. 1 Nr. 1 EStG),
● 1 year for precious metals, jewelry, art objects, currency, coins, and cryptocurrencies (according to § 23 Abs. 1 Nr. 2 EStG).
Profit-making in this case is considered taxable additional income. Taxable additional income exempts items of daily use (according to § 23 Abs. 1 Nr. 2 Satz 2 EStG). This also applies to privately used motor vehicles, unless they are vintage cars, as well as occasional auctions of old clothes, books, or other everyday items conducted on platforms like eBay. Aside from these exceptions, profits from private transactions, which are additional incomes, must be taxed if they exceed 600 euros per year. According to § 22 Nr. 2 EStG, they belong to the so-called “other incomes,” which must be declared in Annex SO. The loss can only be offset with gains from other private sales.
Taxation of additional incomes for volunteer activities
Volunteering is an extremely important part of social and cultural life in Germany. Social commitment (e.g., training future professional footballers or caring for animals in a shelter) and non-payment of income tax for additional incomes are associated with 840 € per year. If your income is higher, you must declare it in Annex N. However, you are entitled to deduct expenses related to your volunteer work.
Filing the income tax return with additional income
As long as you do not exceed the exemption limits and allowances described in the previous section, you do not need to worry – your additional incomes have no impact on your obligation to file a tax return in this case. However, if your additional income exceeds 410 € per year, the tax office may reject your paper-submitted tax return. In such cases, it may require you to submit the declaration electronically via ELSTER or make a correction – unless you simultaneously apply for a tax reduction.
Maciej Szewczyk
He gained experience as a consultant on IT projects for many international companies. In 2017, he founded the startup taxando GmbH, where he developed the innovative tax app Taxando, which simplifies the filing of annual tax returns.
Maciej Szewczyk combines technological expertise with in-depth knowledge of tax regulations, making him an expert in his field. In his private life, he is a happy husband and father and lives with his family in Berlin.
