2021 in Germany: All of the changes expats need to know about
A new year can only mean one thing: lots and lots of new laws! 2021 has finally arrived, and lots of things are changing in Germany. Here is an overview of the most important changes that are likely to affect you.
Changes affecting workers
If you’re currently working in Germany, here are a few things that you need to know about the coming year.
Tax-free allowance goes up
As part of a major government overhaul of taxation, employees in Germany can look forward to some significant tax breaks in 2021. As usual, the basic tax-free allowance - the portion of one’s income upon which no taxes have to be paid - will rise in 2021, from 9,408 euros per year to 9.744 euros.
Minimum wage to increase
Germany’s minimum wage will also increase once again in January - from 9,35 euros to 9,50 euros per hour. And that’s not where the increases stop: as part of the stepped plan to increase the minimum wage to 10,45 euros per hour by 2022, three further increases will follow in 2021, collectively bringing workers wage increases of over 1,3 billion euros.
Solidarity surcharge scrapped
More good news for workers: the solidarity surcharge (Solidaritätszuschlag or Soli for short), a much-maligned tax supplement that was introduced in the 1990s to contribute towards the cost of reunification, is set to be scrapped for the majority of taxpayers in January 2021.
In a nutshell, the “Soli threshold”, below which no solidarity surcharge payments are due, will be increased dramatically, so that parents with two or more children will only pay it if they earn a combined gross annual income of 151.000 euros. Single taxpayers will have to earn over 61.700 euros to be liable.
Commuter flat rate increases
Those who commute to and from work (not that there’s been much of that in 2020) can also look forward to some financial relief in 2021. Germany is making some changes to its commuter allowance (Pendlerpauschale), which is treated like a work-related expense that you can deduct from your income in your annual tax return.
In a bid to offset the rising cost of fuel and car taxes (more on that below), the allowance for those regularly travelling more than 21 kilometres to and from work will increase to 35 cents per kilometre from January 1, 2021. The flat rate will increase again in 2024, to 38 cents per kilometre.
5-euro-per-day home office tax rebate
To help offset the extra cost of running a “home office”, the German government will offer a new tax bonus from 2021. Anyone who worked from home in 2020 can claim up to five euros per full working day in tax deductions, up to a maximum of 600 euros per year.
Changes to social security
As always, the onset of a new year means that there’s plenty of changes happening to social security.
New social contribution thresholds
As of January 1, new social contribution thresholds will apply in Germany, meaning that some people will end up paying more. The contribution assessment limit for statutory health insurance will rise from 56.250 euros to 58.050 euros per year (4.837,50 euros per month).
A new income limit will also apply to the calculation of contributions towards statutory pension insurance. From January 1, 2021, the 18,7 percent contribution will be payable on up to 7.100 euros of your salary per month in the western (old) federal states and 6.700 euros per month in the eastern (new) federal states.
Compulsory insurance limit to increase
The compulsory insurance limit will also increase to 64.350 euros per year (5.362,50 euros per month). Anyone who earns more than this amount can choose to take out private health insurance.
Basic pension comes into force
After years of debate, the federal government’s basic pension scheme (Grundrente) comes into force in January 2021, meaning that around 1,3 million senior citizens can look forward to a higher pension.
Rather than being a benefit in itself, the basic pension is essentially a top-up for those who have contributed to the German pension system for at least 33 years (either by working, child-rearing or caring) but have not accrued a substantial pension. Those who are eligible do not need to apply for the basic pension; the data will be checked and the supplement paid out automatically by the Deutsche Rentenversicherung.
Changes to benefits & allowances
If you are in receipt of any benefits or allowances in Germany, you need to know about the following key changes.
Hartz IV to increase
The Hartz IV (unemployment benefit II) standard rate for single adults will rise from January 1 to 446 euros per month - an increase of 14 euros. 18- to 24-year-olds who live with their parents will receive 357 euros. The benefit will also increase for children: up to 238 euros for those up to the age of five, 309 euros for six- to 13-year-olds, and 373 euros for 14- to 17-year olds.
Child benefits go up
Good news for all families in Germany: Child benefits are going up by 15 euros per month, from January 2021. Thereafter, parents will receive 219 euros of child benefit per month for each of their first two children, 225 euros per month for their third child, and 250 euros per month for each subsequent child.
The child supplement (Kinderzuschlag) for families with low incomes will also increase to a maximum of 205 euros per month.
Higher tax allowance for children
The child tax allowance will also increase by more than 500 euros in 2021, to 8,388 euros per year.
Bureaucracy to be minimised with new digital applications
Germany is notorious for its excessive levels of bureaucracy, so it should be welcome news to all that family allowances are to be simplified and digitised from 2021 onwards. In a nutshell, the change means that parents can now apply for parental allowances, child benefits and birth certificates in a simple online application - although the forms will still need to be printed and sent to the relevant authority.
Housing benefit increased
In order to avoid social hardship, the federal government will also relieve recipients of housing benefit from heating costs this year. On average, people will receive around 15 euros per month, plus up to 3,60 euros for each additional household member. The change is expected to benefit around 665.000 households.
Changes to healthcare
A few changes - mostly higher insurance contributions and new digital offerings - are being made to healthcare in Germany this year.
Higher additional contributions in statutory health insurance
As of January 1, 2021, those insured by statutory health insurance funds will have to dig a little deeper in their pockets, as the average additional contribution rate will increase by 0,2 percentage points, to 1,3 percent. The total health insurance contribution rate will therefore be 15,9 percent in 2021.
Note that if your health insurance company has increased their contributions, you are granted a special right to terminate your cover and seek a new health insurer.
Digital sick notes
Starting in 2021, sick notes in Germany will go digital. The so-called “Gelber Schein” (officially known as the “Arbeitsunfähigkeitsbescheinigung” or “AU”) will be gradually abolished. However, a number of technical delays mean that the change in 2021 is not quite the revolution it was originally feted to be.
Previously, anyone wanting to take sick leave and claim sickness benefit needed to request three copies of the “incapacity to work certificate” from their doctor - one for their employer, one for their health insurance provider, and one for their personal records.
After January 1, 2021 your doctor will take care of the process of forwarding the certificate to your health insurer, but the long-awaited “electronic AU” will not arrive before October 2021. This means that you will still need to submit a physical copy of the AU to your employer, potentially until July 2022. Only then will the eAU finally take over from the Gelber Schein.
Electronic patient records
From January 1, everyone insured under the statutory health insurance system will receive an electronic patient record (elektronische Patientakte or ePA) from their health insurance company - if they so wish. Data such as medical results, diagnoses, medication plans, vaccinations and doctor’s letters are saved in the file. The ePA is meant to ensure that important information can be accessed more quickly in a medical emergency.
Changes to transport
Not much is changing in the world of public transportation at the start of 2021, but if you’re a driver, you need to know about the following things.
Tax hike for high-emissions vehicles
Anyone who drives a car with high CO2 emissions (more than 195 grams per kilometre) will have to pay higher vehicle taxes from January 1. On the other hand, fuel-efficient cars that emit less than 95 grams of CO2 per kilometre will pay less tax in future. The idea is to create an incentive for people to buy low-emissions vehicles.
Bonuses for electric vehicles
The tax exemption for owners of electric vehicles in Germany has been extended. This means that if you own a purely electric or fuel-cell vehicle (not a hybrid model), you are exempt from paying vehicle tax until December 31, 2030.
Longer practical driving test
If you’re learning to drive in Germany, you should also prepare for a change, because the practical driving test will be different from 2021. As well as lasting 10 minutes extra, the new practical test will involve a longer list of driving tasks.
Changes affecting consumers
Consumers need to know about these changes happening in Germany in 2021.
Sale of single-use plastic products banned
From July 3, 2021, many products made from single-use plastic - including, for example, plastic plates and cutlery, drinking straws, coffee stirrers, and takeaway food containers and cups made from styrofoam - will no longer be allowed to be sold in Germany. With this ban on single-use plastics, Germany has implemented an EU regulation that will apply in all member states from July 2021.
VAT rises to 19 percent again
Last year, the federal government opted to cut VAT rates for a fixed six-month period, in an attempt to boost consumer spending. This legislation automatically expired on December 31, 2020, meaning that the standard VAT rate on most goods and services will revert back to 19 percent as of January 1. The reduced VAT rate (which is levied on some foods and other everyday consumer items), will go back from 5 to 7 percent.
CO2 tax increases heating and fuel costs
From January 1, Germany’s new CO2 tax also comes into effect. This new law, which was a cornerstone policy of the federal government’s climate package, provides for a tax on carbon dioxide emissions - 25 euros for each tonne of CO2. This is due to rise gradually to 55 euros per tonne of CO2 by 2025.
Since companies can pass the extra costs they incur onto consumers, a number of things will get more expensive this year. For example, the Federal Environment Ministry says that a litre of petrol will cost 7 cents more in 2021; the cost of diesel and heating oil will rise by 7,9 cents; and natural gas will become 0,6 cents more expensive per kilowatt hour.
Electricity will get a little cheaper
At the same time, however, it looks like electricity in Germany will get a little cheaper this year, as the new CO2 tax is going to be offset by a reduction in the renewable energy surcharge (EEG). Since procurement costs have fallen significantly in 2020, the EEG surcharge will be capped at 6,5 cents per kilowatt hour in 2021.
If electricity providers pass this saving on to consumers (which is a big “if”, because they haven’t always done so in the past), the average household can expect to save around 30 euros per year.
Get ready for a new year!
Unless otherwise stated, most of these new laws come into effect on January 1, 2021. We think we’ve covered everything, but if anything super important is missing, let us know in the comments below!