Solidarity surcharge tax abolished for 90% of German taxpayers
There’s nothing anything likes more than a tax cut, so you’ll be happy to hear that today the Bundestag approved a bill to abolish the solidarity surcharge for 90 percent of taxpayers in Germany.
Soli abolished for majority of German taxpayers
While opposition parties were unanimous in their disapproval, on Thursday 369 members of the ruling CDU / CSU and SPD parties voted in favour of abolishing the solidarity surcharge for the majority of taxpayers. First introduced in 1991, the solidarity surcharge (Solidaritätszuschlag or Soli for short) is a 5,5 percent supplementary rate on income tax and some business taxes that contributes towards the costs of German reunification.
The bill stipulates that the tax will be cancelled for 90 percent of people in Germany. Another 6,5 percent will have to pay a reduced Soli from 2021 onwards, depending on earnings. The top 3,5 percent of earners will continue to pay the solidarity surcharge in full.
The change is expected to cost the government around 10,9 billion euros in the first year. In 2018, the supplementary tax brought the state nearly 18,9 billion euros. By continuing to tax the top 10 percent, the federal government will avoid a revenue shortfall of an estimated 10,9 billion euros per year.
Will I stop paying solidarity surcharge tax?
If you’re wondering whether you will benefit from the tax break, the Ministry of Finance has put forward the following salary limits as a guide: single employees subject to social security contributions, who earn no more than 73.874 euros per year, will stop paying solidarity surcharge after 2021. If you earn up to 109.451 euros, you will continue to pay in part. Those who earn above this limit will pay the Soli in full.
The limits are slightly different for families. Any family with two children, in which only one parent works, will pay no solidarity surcharge on a gross annual salary of up to 151.990 euros. Up to 221.375 euros, a partial payment is due, then the full surcharge beyond that. According to calculations by the Ifo Institute, this category of earner is the most likely to benefit - the new regulation could save you up to 1.800 euros per year.
If you’re self-employed (i.e. a freelancer or you run your own business), the figures are again slightly different. 88 percent of traders subject to income tax will be exempt from the solidarity surcharge. 6,8 percent will no longer have to pay in full.