Income Tax logic
 

Hi and help!

I am a UK born resident that has a small pension (330EUR/month) from Germany when I worked there for 7 years. I recently queried to the Finanzamt Neubrandenburg as to how the tax office arrive at my annual tax bill of 441EUR. I have ‘limited’ tax liability. My taxable income was 2660EUR. In the bill was noted ‘zu versteuern nach dem Grundtarif ….12.068. Not sure that this related to. The reply as below is bizarre and wholly puzzling. I was told any queries see a tax consultant! Hence my call for help. Can anyone make any sense of this calculation? Would be grateful. Thx. Here goes.

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Die Formel gem. § 32a(1) Nr. 2 EStG lautet:

(972,87 * y + 1.400) *y

y ist ein Zehntausendstel des den Grundfreibetrag übersteigenden Teils des auf einen vollen Euro-Betrag abgerundeten zu versteuernden Einkommens.

y ist in Ihrem Fall 0,266.

Somit ergibt sich eine Einkommensteuer von rund 441,00 EUR.

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My translation:

The formula according to § 32a(1) No. 2 EStG reads:

(972.87 * y + 1,400) *y

Y is one ten thousandth of the part of the taxable income rounded off to a full euro amount exceeding the basic allowance.

Y is 0.266 in your case.

This results in an income tax of around EUR 441.00.

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Re: Income Tax logic
 

Hi,

The German social security pension is taxable in Germany under Article 17(2) of the UK-Germany double tax agreement. This means that the UK cannot tax the social security pension, even though it wishes to under domestic law.
I am not sure how did they come up with that sum, I tried to use different online calculators but I am ending up with different sum. If I were you I would contact to a tax advisor which would pay off in the long term.

Re: Income Tax logic
 

The Grundfreibetrag (tax free personal allowance) for 2020 was 9.408,00€

So your income of 12.068,00 - 9.408,00 = 2.660,00€

1/10.000 = 0,266

So:

(972,87 x 0,266 + 1.400) x 0,266

(258,78 + 1.400) x 0,266

1.658,78 x 0,266 = 441,24 €