Impact of COVID-19 Stimulus Check on German Taxes

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Hello,

 

Does anyone know what impact the COVID-19 stimulus payment has on the German Steuererklärung?

 

Would a person who normally doesn't need to file a 2019 german tax return (because of no "Pflichtveranlagung") now need to file because of this payment? I'm confused as to how this kind of a payment is classified when it comes to German taxes. What's the best way to approach this?

 

Hoping someone can help. :)

 

Regards,

Bokaj

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11 hours ago, Bokaj said:

Would a person who normally doesn't need to file a 2019 german tax return (because of no "Pflichtveranlagung") now need to file because of this payment?

 

No.

 

Why?

 

Because you receive it in 2020 as an advance credit for your 2020 tax year, the return for which you will not file until sometime in 2021 at which time you will be required to demonstrate your qualification to receive the payment.  If it turns out that your advance tax credit payment was too high, you will have to pay it back; if too low you will be eligible to receive an additional credit.  That reckoning will take place in 2021.

 

In short:  whatever the payment is, was or will be it will have nothing to do with 2019.

 

This is the only aspect of your question that I can confidently answer.

 

How such a payment received in 2020 (or 2021) will be characterized for German tax purposes I cannot say.  However, I speculate that it will be regarded much as US refundable child credit payments are now regarded:  the US equivalent of "Kindergeld"; not taxable "income".

 

I also will go out on a limb and predict that there will be no published guidance by the German authorities on the subject; i.e. you and your local Finanzamt will be invited (if not encouraged) to simply ignore it on your German income tax returns.

 

The problem of characterizing these and other refundable tax credits is a growing one as politicians in various countries seek to use their tax codes as a more politically palatable channel for income redistribution.

 

Watch this space for further notice.

 

 

 

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6 hours ago, Straightpoop said:

 

No.

 

Why?

 

Because you receive it in 2020 as an advance credit for your 2020 tax year, the return for which you will not file until sometime in 2021 at which time you will be required to demonstrate your qualification to receive the payment.  If it turns out that your advance tax credit payment was too high, you will have to pay it back; if too low you will be eligible to receive an additional credit.  That reckoning will take place in 2021.

 

In short:  whatever the payment is, was or will be it will have nothing to do with 2019.

 

This is the only aspect of your question that I can confidently answer.

 

How such a payment received in 2020 (or 2021) will be characterized for German tax purposes I cannot say.  However, I speculate that it will be regarded much as US refundable child credit payments are now regarded:  the US equivalent of "Kindergeld"; not taxable "income".

 

I also will go out on a limb and predict that there will be no published guidance by the German authorities on the subject; i.e. you and your local Finanzamt will be invited (if not encouraged) to simply ignore it on your German income tax returns.

 

The problem of characterizing these and other refundable tax credits is a growing one as politicians in various countries seek to use their tax codes as a more politically palatable channel for income redistribution.

 

Watch this space for further notice.

 

 

 

 

Thank you.

 

Do you have any insightful links about the "paying it back" part? I'd be very interested in that.

 

And what are your thoughts on this:

 

https://www.marketwatch.com/story/do-i-have-to-pay-back-my-1200-stimulus-check-dont-fall-for-these-five-myths-about-the-stimulus-payments-2020-04-18

 

?

 

I admit I have no clue about these things, so I'm not sure if that article conflicts with what you're saying or if I'm not understanding it.

 

Appreciate your help.

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The article does conflict with my statement about having to pay it back if in 2020 your income exceeds the threshold for eligibility that was established by your 2018 or 2019 return.

 

The article is correct and I was wrong.

 

Here is the straightpoop from the IRS concerning what happens if you receive an EIP in calendar 2020 because you met the qualifications as evidenced by your 2018 or 2019 income tax return but in 2020 your income exceeds the threshold requirements:

 

FAQ No. 28:

 

https://www.irs.gov/coronavirus/economic-impact-payment-information-center

 

A28. No, there is no provision in the law requiring repayment of a Payment. When you file next year, you can claim additional credits on your 2020 tax return if you are eligible for them, for example if your child is born in 2020. But, you won’t be required to repay any Payment when filing your 2020 tax return even if your qualifying child turns 17 in 2020 or your adjusted gross income increases in 2020 above the thresholds listed above.[emphasis added].

 

I apologize for the error.

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13 hours ago, Straightpoop said:

The article does conflict with my statement about having to pay it back if in 2020 your income exceeds the threshold for eligibility that was established by your 2018 or 2019 return.

 

The article is correct and I was wrong.

 

Here is the straightpoop from the IRS concerning what happens if you receive an EIP in calendar 2020 because you met the qualifications as evidenced by your 2018 or 2019 income tax return but in 2020 your income exceeds the threshold requirements:

 

FAQ No. 28:

 

https://www.irs.gov/coronavirus/economic-impact-payment-information-center

 

A28. No, there is no provision in the law requiring repayment of a Payment. When you file next year, you can claim additional credits on your 2020 tax return if you are eligible for them, for example if your child is born in 2020. But, you won’t be required to repay any Payment when filing your 2020 tax return even if your qualifying child turns 17 in 2020 or your adjusted gross income increases in 2020 above the thresholds listed above.[emphasis added].

 

I apologize for the error.

 

Oh okay, thank you for clarifying. :) So, in that case, I'm not sure how to ask the question, but I'll try my best: should it then be regarded as a payment received in 2019 or a payment received in 2020/2021)? I specifically mean for here in Germany, from a "Steuererklärung" perspective.

 

I haven't been required to do a Steuererklärung for years, as there was no Pflichtveranlagung for me, and to do one freely didn't make much sense either. But now I don't want to risk not-filing, if this stimulus payment somehow makes me required to file. FWIW I regularly do my US tax returns with the Foreign Earned Income Exclusion.

 

Does the information from the article provide you with any insight about how the payment might/should be interpreted here in Germany?

 

Many thanks, and sorry if I'm bothering you. There just isn't any information online regarding this. In the end I think I'll probably just need to ask a real Steuerberater or something.

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25 minutes ago, MikeMelga said:

What about home office? Anybody thinks home office tax deduction limit will be increased from 1250€?

 

More important than the max amount, I think people will be more interested in been able to deduct home office expenses at all.  Several years ago they made it more difficult, so a simple letter from your employer saying you do home office here and there do not cut it anymore.   I actually expect that for this fiscal year everyone will be able to deduct home office expenses with no need of any complicated requirements.

 

I don't expect the limit to be increased, though, and actually I don't really see a reason for that.   But maybe the FA does.

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13 hours ago, Bokaj said:

should it then be regarded as a payment received in 2019 or a payment received in 2020/2021)? I specifically mean for here in Germany, from a "Steuererklärung" perspective.

 

 

A tax return (Steuererklärung) reports income tax relevant events that took place within a specific span of time in the PAST.

 

In Germany, as in the US, the default tax year for individuals is the (Gregorian) calendar year (beginning 1.1.xxxx and ending 31.12.xxxx).

 

Accordingly, events relevant to your 2019 German tax liability occurred after 31.12.2018 and before 1.1.2020.

 

-Your EIP was based on rights created by legislation passed in 2020.

-You actually received the payment in 2020.

-The payment is - theoretically anyway - an advance linked to your anticipated US tax liability and income for the year 2020

- which you will report/reconcile on a US tax return due to be filed in 2021.

 

Does this help?

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8 hours ago, Krieg said:

 

More important than the max amount, I think people will be more interested in been able to deduct home office expenses at all.  Several years ago they made it more difficult, so a simple letter from your employer saying you do home office here and there do not cut it anymore.   I actually expect that for this fiscal year everyone will be able to deduct home office expenses with no need of any complicated requirements.

I managed to make it work, but takes a well written letter from the employer. Not only the letter has to state that you work from home, but it also has to say why (in my case different time zone customers) and why you can't travel to the company in the middle of the night to do it. In my case, building and company policy, everything is closed at night and alarm is on.

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On 6/11/2020, 2:03:43, Straightpoop said:

 

 

A tax return (Steuererklärung) reports income tax relevant events that took place within a specific span of time in the PAST.

 

In Germany, as in the US, the default tax year for individuals is the (Gregorian) calendar year (beginning 1.1.xxxx and ending 31.12.xxxx).

 

Accordingly, events relevant to your 2019 German tax liability occurred after 31.12.2018 and before 1.1.2020.

 

-Your EIP was based on rights created by legislation passed in 2020.

-You actually received the payment in 2020.

-The payment is - theoretically anyway - an advance linked to your anticipated US tax liability and income for the year 2020

- which you will report/reconcile on a US tax return due to be filed in 2021.

 

Does this help?

 

I'm sorry, my mistake. Lol I was definitely NOT drunk but I kept saying 2019 for some reason, even though I meant 2020 right from the start.

 

Yes, what you're saying is totally accurate. :)

 

Now I'm just curious about where I could find some clarity on how this payment is interpreted when it comes to German taxes, especially for someone like me who usually has no Pflichtveranlagung.

 

If, toward the end of this year / beginning of next year there are no clear answers anywhere publicly, then I'll just ask a Steuerberater, or even the Finanzamt directly I guess.

 

Your earlier speculations about it (US equivalent of Kindergeld etc., not taxable income) seem entirely plausible.

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11 hours ago, Bokaj said:

Now I'm just curious about where I could find some clarity

 

My preferred source of clarity would be at the bottom of the glass of a good scotch.

 

In this case I would recommend that as a cheaper alternative to a Steuerberater who is unlikely to have any better idea than John Walker & Sons but the tapping of whose ignorance will be a good deal more expensive.

 

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15 hours ago, Straightpoop said:

 

My preferred source of clarity would be at the bottom of the glass of a good scotch.

 

In this case I would recommend that as a cheaper alternative to a Steuerberater who is unlikely to have any better idea than John Walker & Sons but the tapping of whose ignorance will be a good deal more expensive.

 

 

I understand what you're saying... it's just that I'm a bit too cautious perhaps? I wouldn't want it to backfire on me in the future if I don't deal with the payment the right way, so to speak. Not sure if "ignoring" it (from a tax perspective) is worth the risk. That's why I say a Steuerberater or even the Finanzamt directly might provide clarity.

 

Thanks again for your help.

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Thought I'd check back to see if someone might've updated the thread with some info that could help, but there isn't anything unfortunately. I'm not getting info from other sources either, so that the only option would be a lawyer, or a Steuerberater, or the Finanzamt directly.

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Isn´t it quite simple, actually? When you file your German tax return where would you enter a foreign tax refund? It´s not income from work nor dividends nor interest nor proceeds from selling options etc. As there is no question on the form asking for foreign tax credits my layman´s guess is that you don´t have to enter it anywhere and therefore you won´t be taxed on it. You´re not required to tell them things they don´t ask for.

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6 hours ago, jeba said:

Isn´t it quite simple, actually? When you file your German tax return where would you enter a foreign tax refund? It´s not income from work nor dividends nor interest nor proceeds from selling options etc. As there is no question on the form asking for foreign tax credits my layman´s guess is that you don´t have to enter it anywhere and therefore you won´t be taxed on it. You´re not required to tell them things they don´t ask for.

 

Thanks a lot for replying and trying to help out. It probably is quite simple as you say, but keep in mind you're talking to someone who has zero knowledge with German taxes because he hasn't been required to file for years. I've quadruple checked this, and I'm someone with Steuerklasse I who has nothing additionally which would require a Pflichtveranlagung. So I'm not sure whether the mere fact that I received such a check would "trigger" a Pflichtveranlagung / requirement to file. And if not a requirement to file, then maybe some kind of requirement to "report" the check to the Finanzamt through other means (a simple letter)? I really don't want to do anything that could backfire.

 

And the response I've gotten from elsewhere is this: "My guess would be that the stimulus check counts as foreign income. Therefor probably won't have to be taxed (since it's below the tax bracket in the US) but adds up to your Progressionsvorbehalt in Germany."

 

So while it may be quite simple for many people, it isn't for me, simply because I'm a totally newbie for German taxes. I've only filed my US taxes along with the Foreign Earned Income Exclusion.

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I had included my 5,000 euro Berlin COVID assistance payment on my US Form 2555 Part VII Foreign Income Exclusion, since the German tax office considers it taxable income. Does anybody know if this correct? It seems that if the Germans consider it income, the US should too, regardless of the fact that the US COVID assistance was not considered taxable income.

 

If I should not include the German COVID assistance payment on my 2555, I'd clearly be better off to claim the Form 1116 Foreign Tax Credit instead...

 

I also received US COVID assistance payments, which as they are not considered taxable income in the US, I am not reporting as income on my German taxes.

To me, the logic of it is thus: I am treating German and US Covid assistance on all my tax forms in the manner in which the issuing country would have me treat it.

 

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On 8/18/2021, 11:02:23, pianostar69 said:

If I should not include the German COVID assistance payment on my 2555, I'd clearly be better off to claim the Form 1116 Foreign Tax Credit instead...

 

I am not real familiar with German COVID assistance but then I am rather certain that neither is the IRS. Depending upon the rationale and structure of German payments they could, technically, qualify as Foreign Earned Income under IRC §911.  It is also possible, for example, that if structured as a benefit under "Social Security legislation" as that term is defined in Article 18(5) of the Germany-USA tax treaty it might qualify for treaty exclusion on the return of a US citizen resident in Germany.  If the Germans tax it you can always claim a foreign tax credit, of course, for the German taxes allocable to the benefit that cannot, for one reason or another, be excluded under US tax law.

 

 

Quote

I also received US COVID assistance payments, which as they are not considered taxable income in the US, I am not reporting as income on my German taxes.

To me, the logic of it is thus: I am treating German and US Covid assistance on all my tax forms in the manner in which the issuing country would have me treat it.

 

I like your exercise in logic but unfortunately logic and tax law (here, there or anywhere) are frequently incompatible bedfellows.

 

In general, except as a treaty might limit its power to do so, the state imposing its taxes is not required to give a fig about the tax treatment some other state might give to any item of income, deduction or credit - including such items that actually originate in that other state.

 

German tax law will determine the taxability in Germany of your US Covid benefits and US tax law (beginning with the general assumption of taxability under IRC §61) will determine the taxability in the USA of your German Covid benefits.

 

Right now, however, so far as I know the jury is still out deliberating this issue in both countries and no official "verdict" has yet been returned.

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56 minutes ago, Straightpoop said:

I am not real familiar with German COVID assistance

 

Under German tax rules, the German Corona subsidies are business income.

To be sure that nobody "forgets" to declare them, they even created a new additional form in the German tax return that is mandatory for everybody who had self-employed income in 2020 called "Anlage Corona-Hilfen" (= form Corona subsidies): https://www.ihk-muenchen.de/ihk/documents/Recht-Steuern/Steuerrecht/Neuer-Ordner/Anlage_Corona-Hilfen_2020.pdf

 

It also says in that new tax form that the Corona subsidies also have to be declared as part of the business turnover in both Anlage EÜR/your GuV and in Anlage S or G (depending on whether you are a Freiberulfer or a Gewerbetreibender):

  • in den Anlagen G, L und / oder S der Einkommensteuererklärung oder in den Anlagen FG, FE 1 der Feststellungserklärung sowie in den jeweiligen Gewinnermittlungen als steuerpflichtige Betriebseinnahmen enthalten
  • included as taxable business income in Annexes G, L and / or S of the income tax return or in Annexes FG, FE 1 of the assessment return as well as in the respective profit determinations (that would be Anlage EÜR or the GuV, i.e. Gewinn- und Verlustrechnung if you do balance sheets)

 

****************************************************************

 

The US COVID-19 Stimulus Check on the other hand is neither taxable income, nor is it subject to the lesser evil of Progressionsvorbehalt

--> it does not appear in your German tax return at all.

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7 hours ago, PandaMunich said:

mandatory for everybody who had self-employed income in 2020

 

Thanks Panda.

 

I suppose that a self-employed US citizen resident of Germany could regard the subsidy as "business income" arguably received in exchange for the "service" of inhaling and exhaling for the requisite periods of time and therefore exclude it under the FEI as earned "services" income  under the FEI.

 

But what about underemployed or laid-off persons?

 

Did employed persons (or temporarily laid-off employees) receive a Covid subsidy and, if so, how was the payment structured?  As a "wage" supplement paid through their former/current employer?  Directly from the Bund?  As a "social security" benefit of some kind?

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7 hours ago, PandaMunich said:

The US COVID-19 Stimulus Check on the other hand is neither taxable income, nor is it subject to the lesser evil of Progressionsvorbehalt

--> it does not appear in your German tax return at all.

 

Has there been any published official guidance to that effect from the BMF or some other German OFD or FA?

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