(2022)
Minimum standard of living: Are the child allowances unconstitutionally low?
The minimum subsistence level for children must be exempt from tax for constitutional reasons. This is achieved through the child allowance and the BEA allowance (for care, education and training needs). The tax office automatically checks as part of the annual tax assessment whether these two allowances or the child benefit paid during the year are more favourable for the parents.
While the BEA allowance has remained unchanged at 2,640 Euro since 2010, the child allowance was increased annually from 2015 to 2018 after four years of stagnation. It amounts to 4.368 Euro (2010-2014), 4.512 Euro (2015), 4.608 Euro (2016), 4.716 Euro (2017), 4.788 Euro (2018), 4.980 Euro (2019).
In 2021 and 2022, the child allowance is 5.460 Euro each year. Planned: Retroactively from 1 January 2022, the child allowance will be increased from 2,730 Euro to 2.810 Euro per parent (a total of 5.620 Euro); further increases will take place on 1 January 2023 and 1 January 2024 ("Inflation Compensation Act").
In February 2016, the Lower Saxony Finance Court expressed serious doubts about the constitutionality of the child allowance for 2014. It should have been at least 4.440 Euro instead of 4.368 Euro. Therefore, parents were entitled to a suspension or cancellation of enforcement (Lower Saxony FG of 16 February 2016, 7 V 237/15).
The Federal Fiscal Court also agreed that an application for suspension of enforcement was justified for 2014, insofar as it related to an amount of 72 Euro by which the child allowance was too low (BFH decision of 21 July 2016, V B 37/16).
Currently, the Lower Saxony Finance Court has reiterated its position: The child allowance was not only unconstitutionally low in 2014, but the entire calculation method for the child allowance is unconstitutional - and therefore the allowance was also too low in other years. The court has therefore suspended a legal action and referred the question to the Federal Constitutional Court as to whether the statutory regulation on the amount of child allowances is unconstitutional (FG Niedersachsen of 2 December 2016, 7 K 83/16).
- When determining taxable income, an amount equivalent to the minimum subsistence level must remain tax-free. No income tax may be levied on the part of the income that would be received as a social benefit in the event of need. The amount of the minimum subsistence level is determined by the Federal Government every two years.
- The child allowance set by the legislator based on an average calculation assumes a material minimum subsistence level for all children that is lower than the social welfare requirement for a child from the age of 6. This also applies to older or adult children who are considered due to, for example, education or disability.
- The finance judges criticise that the child allowance is designed independently of age, while the social welfare requirements for children are age-dependent and increase with the child's age. When determining the child allowance, only an average minimum subsistence level of 258 Euro per month is assumed, which is below the social benefit entitlement of a six-year-old child (standard rate 2014: 261 Euro per month).
- The finance judges fundamentally criticise the calculation of the child allowance because the same minimum subsistence level applies for an adult child as for a minor child, but not as for an adult. This is neither appropriate nor consistent and is therefore no longer covered by the legislator's discretion. Therefore, the child allowance for the younger daughter must be 444 Euro higher and for the older daughter 1,346 Euro higher.
The Federal Constitutional Court must now decide - but this can easily take up to ten years. The decision is relevant for all parents who are entitled to child benefit or a child allowance for their children. An increase in child allowances not only affects those taxpayers for whom the child allowance is more favourable than child benefit, but affects everyone, as child allowances are always taken into account when determining church tax and the solidarity surcharge.
