Pensioners: Tax exemption for the basic pension supplement
Since 1 January 2021, there has been a basic pension for long-term insurance in the statutory pension insurance. This is not a new type of pension, but merely a supplement to the statutory pension (introduced with the "Act on the Introduction of the Basic Pension for Long-Term Insurance in the Statutory Pension Insurance with Below-Average Income and for Further Measures to Increase Retirement Income" - Basic Pension Act - of 12 August 2020).
- The calculation of the individual basic pension supplement is based on a legally defined calculation method. An income test is carried out to determine the basic pension requirement. If the income exceeds legally defined income allowances, the basic pension supplement is reduced. An entitlement to a basic pension supplement may therefore vary in amount in individual years due to the income test.
- The introduction of the basic pension supplement aimed to strengthen confidence in the basic promise of the welfare state to provide security and in the performance of the statutory pension insurance. Against this background, it should also be ensured from a tax perspective that the basic pension supplement, which recognises the lifetime achievement of the entitled person, is not reduced.
Retroactively from 2021, the portion of the pension paid due to the basic pension supplement is tax-free. This means that the basic pension supplement is available in full without tax deductions and can contribute unimpeded to securing the livelihood (§ 3 No. 14a EStG, inserted by the "Annual Tax Act 2022").
In many cases, a basic pension supplement was already paid in 2021. Consequently, this partial amount was reported to the tax authorities in the pension reference notification for 2021 and treated as taxable. For the retroactive tax exemption, the statutory pension insurance providers are now required to submit corrected pension reference notifications to the tax office, indicating the amount of the tax-free basic pension supplement.
If an income tax return has already been submitted for 2021 and the tax assessment has even become final, the tax office will now correct it. However, the change will only be made to the extent resulting from the corrected pension reference notification. Other amendment regulations remain unaffected (§ 52 para. 4 sentences 5 to 8 EStG).
