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Solidarity Surcharge: Draft Law adapted on August 21, 2019 by Federal Cabinet
- Reduction for most individual taxpayers from the tay year 2021 onwards planned -
On 21 August 2019, the German Federal Cabinet adopted a draft law on the reduction of the solidarity surcharge for individual taxpayers.
The main content is as follows:
- Increase of the exemption limit, up to which no solidarity surcharge is payable, to EUR 16,956 or to EUR 33,912 (individual/joint assessment) of the tax payment. This would mean, for example, that a family with two children up to a gross annual salary of EUR 151,990 and single persons up to a gross annual salary of EUR 73,874 would no longer pay a solidarity surcharge. According to calculations by the Federal Ministry of Finance (BMF), the solidarity surcharge will thus be completely abolished as of 2021 for around 90 percent of today's taxpayers.
- Adjustment of the so-called "mitigation zone": If the income tax rate exceeds the exemption limit, the solidarity surcharge will not be levied immediately in full (5.5% of income tax). According to the Federal Ministry of Finance, this should relieve a further 6.5 % of today's solidarity surcharge payers, albeit with a decreasing effect as incomes rise.
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According to the current draft law, the additional burden of paying the solidarity surcharge would have been resolved for most taxpayers by 2021. This is the good news!
However, the draft law does not provide for any relief for companies in the legal form of corporations. Thus, the solidarity surcharge of 5.5 % of corporate income tax is to remain just as high as for individual taxpayers with a high income tax burden above the exemption limits of the so-called "mitigation zone".
There are important legal experts (including the former President of the Constitutional Court, Hans-Jürgen Papier) who consider the solidarity surcharge to be unconstitutional overall, at the latest after the expiry of the Solidarity Pact II at the end of 2019. A case (2 BvL 6/14) concerning the unconstitutionality of the Solidarity Surcharge Act 1995 has been pending before the Federal Constitutional Court already since 21 February 2014.
The Federal Ministry of Finance has long since ordered that, pending the decision by Federal Constitutional Court, the tax offices should make all determinations of the solidarity surcharge provisionally from the assessment period 2005 onwards. As long as this provisionality note is valid, nothing further needs to be done. This provisionality note ensures under procedural law that, in the event of a positive decision by the Federal Constitutional Court, you can be granted retroactive tax relief.
Please do not hesitate to contact us in case of any questions.
Björn Christian Gerow
Steuerberater
Fachberater IStR
+49-211-17257-15
