2021: New rules and other changes for freelancers in Germany
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No other year brought about as many changes for freelancers as 2020. Some were planned, and many were the result of efforts to minimise the impacts of the Covid-19 pandemic. But as we enter a new year, it is time to look ahead and focus on what 2021 has in store for us. We are once again faced with tax changes and new regulations, so read on to learn what will be important for freelancers this year.
💡Tip from Accountable: If you need a quick reminder of the deadlines for freelancers in Germany, you should bookmark this article!
Relevant changes for everyone
Tax free allowance
The tax free allowance, or Grundfreibetrag in German, describes the amount of income you can earn in Germany without having to pay any tax. It usually increases every year – and 2021 is no different. In 2020, you could earn up to 9,408 Eur without paying tax. In 2021, the threshold is climbing to 9,744 Eur. For married couples, the tax-free threshold is double the amount of last year.
The next big change is the discontinuation of the solidarity surcharge, or Solidaritätszuschlag. Singles who earn up to 61,717 Eur and married couples who make 123,434 Eur won’t have to pay the surcharge anymore. This affects an estimated 90% of all taxpayers and results in a financial tax advantage of about 932 Eur for an annual income of 61.716 Eur.
If your income exceeds the threshold, you will have to partly pay the surcharge. The full amount of 5.5% of your income is charged for singles who make more than 96,409 Eur and couples who earn more than 192,818 Eur a year.
Also affected by changes of regulation in 2021 is the cold progression. This refers to the additional tax burden brought about by an increase of income that only equals inflation. This leads to a decrease in value of the money after tax.
To minimise this controversial mechanism, the German government has decided to match the income threshold for certain tax rates to the respective inflation rate.
Increase of lump-sum allowance for volunteer work
In addition to the aforementioned changes, the government will also increase the lump-sum allowance for volunteer work. This includes rising the tax threshold for volunteer sports instructors and supervisors from 2,400 to 3,000 Eur.
Increase of lump-sum allowance for care of relatives and people with disabilities
The lump-sum allowance for care of relatives is increasing and for the first time in 45 years, this also includes payments for people with a disability: Instead of 310 Eur, people with a handicap of 30% can now claim 620 Eur on taxes.
Tax changes for parents
To combat the negative financial impacts of the coronavirus, the German government almost doubled the additional tax free allowances for single parents, called Entlastungsbetrag, to 4,008 Eur. The change came into effect in July of last year and will stay in place for 2021.
Additionally, all parents will receive more child support. Payments include 217 Eur per month for the first two children, 225 Eur per month for the third child and 250 Eur per month for every additional child.
Finally, the tax free allowance for taxpayers with children increases to 8,383 Eur.
Important changes for freelancers: Social security, health insurance, and distance flat rate
Many freelancers have been financially impacted by Covid-19. That is why the German government has decided to make it easier for people to receive social security benefits, also known as Hartz IV. If you need financial help from the state, you will now get 446 Eur a month.
Not so pleasant news wait for freelancers who receive public health insurance: Monthly payments will increase due to higher income thresholds. So far, any annual income exceeding 56,250 Eur was not included in payment calculations for your public health insurance. In 2021, the threshold climbs to 58,050 Eur. Experts also predict an increase of additional contributions to public health insurance from 0.2% to 0.6%, depending on the insurance company.
Last but not least, 2021 also sees the introduction of the so-called CO₂-tax, resulting in higher energy prices. Part of this mark-up will be balanced out by an increase of the distance flat rate to 0.35 Eur from the 21st kilometer onwards. You can use the flat rate to reduce your tax burden for business related trips to and from your primary place of work. This can be your office, but also a co-working space, or the client you are currently working for.
💡Tip from Accountable: Working from home? This is what you can claim on tax!
VAT, Covid support for freelancers, restaurants, and home office
The temporary VAT reduction from 19% to 16% and 7% to 5% has ended. But there are still a few rules in place to support business and freelancers through the pandemic.
To help restaurants cope with the losses of 2020, all meals and drinks will be taxed with the reduced rate of 7% from January 2021 on. The current plan is to return to regular VAT rates for food services by 01/07/2021, charging 19% for in-house services and 7% for take away orders.
Support for freelancers
If you work in the creative sector and are financially affected by the pandemic, the German government has introduced a number of support packages to help. You can find more information here.
If you are a freelancer or have your own business, you can educate yourself about possible support packages from the government here.
Finally, the Federal Ministry of Economics also has some more information for business owners.
💡Tip from Accountable: As the Covid-19 pandemic is subject to on-going change, these rules and offers are frequently adapted and updated, so you might want to bookmark this website by the Ministry of Finance to stay informed.
Another important new rule is that you can now claim your home office on tax, even if you don’t have a separate room for it in your house or apartment. The current plan is to allow lump-sum claims of up to 600 Eur a year for home office expenses.
This article is merely an excerpt of all the changes in regulation taking place in 2021 and can not accurately depict any and all new regulations in relation to the Covid-19 pandemic.
Because of these changes, 2020 and 2021 will probably be an even bigger challenge for freelancers doing their taxes. But luckily there are many free tools out there that help you get the most out of your taxes.
💡Tip from Accountable: It is more important than ever this year to look for help when it comes to your taxes and make the most out of all the new regulations. Our app is always up to date with the most recent changes and is the smart way of doing your taxes.