Will tax refunds be delayed in 2020?

Interest income tax

This is how you get high interest rates from the tax office

Udo Reuss
Tax Expert As of March 29, 2021

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

  • Many employees can voluntarily submit a tax return. They have four years to do this; e.g. for the 2020 tax return by the end of December 2024.
  • 15 months after the end of the calendar year in which the tax was incurred, the tax office begins to pay interest on the repayment amount - 0.5 percent for every full month, i.e. 6 percent per year.
  • The Federal Fiscal Court considers this high interest rate to be unconstitutional, especially for interest periods from April 2012 onwards. The Federal Constitutional Court must decide whether this is the case and whether previous years have already been affected. Currently, the tax office is only setting the interest rate provisionally.
  • If you are sure that you are entitled to a tax refund and you are not required to file a tax return, you can with one if possible late submission of voluntary declaration get high interest rates from the tax office.
  • You have to pay reimbursement interest as Tax capital income.
  • If, on the other hand, you have to pay back payment interest to the tax office, you cannot offset them as costs.

Tax cases sometimes drag on for years - especially when taxpayers and tax authorities argue. Often a tax court then has to decide. If, after the long waiting period, it is finally clear that the office has to reimburse part of the taxes paid years ago, the taxpayer receives interest on it: stately 0.5 percent for every full month, so 6 percent for a full year (§ 238 Tax Code (AO)). The so-called Interest run always starts after one Waiting period of 15 months after the end of the calendar year in which the tax arose (§ 233a AO).

Benefit from later application assessment

Employees in particular can take advantage of the high interest rates voluntarily submit an income tax return. In tax office German that meansApplication assessment and affects more than eight million tax returns a year. According to information from Uwe Rauhöft, managing director of the Federal Association of Income Tax Assistance Associations, around 55 percent of the tax returns submitted are voluntary on application for employees with no further income and only 45 percent of the cases are compulsory.

Because only in certain cases are employees actually obliged to submit an income tax return by July 31 of the following year: This applies, for example, if they already had a lower wage tax deduction during the year because they have an allowance on their electronic wage tax card. Married couples who have chosen the tax bracket combination III / V or IV with a factor must also submit a tax return.

Many other wage taxpayers, however, are not forced to do so. You have up to four years After the end of the tax year, you have time to file your tax return. You can submit the documents for 2020 until December 31, 2024. From April 2022 the time will begin when one Tax refund for 2020additional interest brings from the tax office. The interest run for the 2019 tax return begins in April 2021. There is no compound interest.

Example: Taxpayers submit their voluntary 2020 tax return on December 31, 2024. In addition to the tax refund of 2,500 euros, he will also receive interest from the tax office at the beginning of June 2025. There are none for the first 15 months. For the period April 2022 to May 2025 (38 months) these are: 2,500 euros × 38 × 0.5 percent = 475 euros.

However, he must include this interest income in his 2025 tax return as capital incometax - with a flat rate of 25 percent. A 5.5 percent solidarity surcharge is added to this withholding tax (a total of 26.4 percent = 125.40 euros). Church taxpayers also have to pay church tax on this. In a net view, this leaves 349.60 euros in interest after taxes.

You have four years to assess the application. If it is certain that you are entitled to a tax refund and you are not urgently dependent on the money, you can submit the voluntary tax return as late as possible and take the interest with you from the tax office. Therefore, keep the documents required for this tax return for a long time.

Danger: In the year in which you receive the tax interest from the tax office, you have to file a tax return Committed. That means you won't be able to use the late filing trick this year. On November 29, 2019, the Federal Council passed the Annual Tax Act 2019. This now explicitly stipulates that employees who Capital income without tax deduction have always received a tax return in the future have to submit (Section 32d (3) sentence 3 EStG), even if they only have low income.

For the mostSelf employed and tradespeople are obliged to pay the fee anyway, so they must not postpone the fee.

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Why is interest paid taxable?

Do you have interest from the tax office receive, then you have to fill out a KAP annex to the income tax return for the year of payment. The state has not withheld any withholding tax from the interest; the tax office will initially pay it untaxed. That the Interest as investment income apply, the tax authorities stipulated in Section 20 Paragraph 1 Number 7 of the Income Tax Act, confirmed by the Federal Fiscal Court (judgment of November 12, 2013, Az. VIII R 36/10).

In the opposite case, however, this does not apply: If the taxpayer has to pay late interest to the tax office, there is no compensation. He cannot claim it in his income tax return. ThatBack payment interestas opposed to reimbursement interesttax neutralshould be, is controversial, but corresponds to the current legal situation.

If the taxes as Business expenses are deductible, then this also applies to ancillary tax benefits such as interest. That's why entrepreneurs can Deduct interest on a sales tax back payment.

How can you defend yourself against an interest notice?

Often the tax office sets in a document fixed taxes and interest at the same time. Then legally speaking two notices before: a tax assessment and an interest assessment.

If you think the interest calculation is wrong, you can within a monthRaise an objection. This must then explicitly refer to the interest notice.

Interest can arise not only in the event of a subsequent tax claim, but also in the event of a

  • Suspension or deferral of a tax payment,
  • tax evasion as well
  • after a lawsuit.

Basically: If you are in a clinch with the tax office, you can always also use the Suspension of execution (AdV) apply. If the authority approves this application, then you need the disputed amount initially not to be paid

The problem: If the court does decide against you, the tax office will demand the tax liability plus high back payment and suspension interest. If you can afford it financially, you should therefore refrain from suspending the execution and instead pay immediately.

Is the Interest Rate Unconstitutional?

The high interest rate of 6 percent per year or 0.5 percent per month, however controversial. In February 2018, the Third Senate of the Federal Fiscal Court (BFH) published a ruling that concerned interest on arrears in 2013. Accordingly, the interest rate does not violate the principle of equality or proportionality (judgment of November 9, 2017, Az. III R 10/16).

On the other hand, the Ninth Senate of the BFH, which published a resolution in May 2018 (resolution of April 25, 2018, Az. IX B 21/18) takes a different view. Thisdoubts the constitutionality the interest rate, theunchanged since 1961 applies. Because in a structural, years-long phase of low interest rates, this would be unrealistic and much too high. A few months later, the Eighth Senate of the BFH also agreed with this opinion. He considers the interest rate for interest periods from 2012 to be too high (BFH, decision of September 3, 2018, Az. VIII B 15/18).

Especially for Interest periods from 2012 the interest rate violates the general equality rate anchored in the Basic Law. In addition, the judges doubt whether the interest rate is compatible with the so-called prohibition of excess. Prohibition of excess means that a legal regulation does not apply if the resulting disadvantages for the taxpayer are out of proportion to the intended success.

The claimant couple had initially taxed income from capital assets. Years later found one External audit instead of. The tax office checked the facts on site with the couple and then classified this income differently. This not only resulted in an additional tax payment of almost 2 million euros, but also an interest notice with more than 240,000 euros Back payment interest for the period from April 1, 2015 to November 16, 2017. The BFH granted the couple temporary legal protection and suspended the execution of the interest notice. The case has yet to be decided in main proceedings.

The Ninth Senate justified its decision by stating that the interest rate was set unrealistic. The tax office could take into account the advantage that the money could be invested in the meantime. However, an interest rate of 6 percent is far from being achievable on the capital market. This is a legal surcharge on the tax assessment. This would in fact lead to additional income for the tax authorities.

To make matters worse, a taxpayer has no influence at all on when a tax audit takes place and leads to tax back payments. After years, the taxpayer faces not only a hefty back tax payment, but also a hefty interest premium. As a result, it acts like a penalty.

The two BFH decisions are not limited to individual cases. That means: All taxpayers who have recently received a request to pay interest can be spared for the time being. The highest tax authorities of the federal and state governments instruct the tax offices for Interest periods from 2012 grant provisional legal protection (Federal Ministry of Finance, letter dated November 27, 2019).

The tax authorities want one Wait for the decision of the Federal Constitutional Court. Because there are currently several proceedings before the court with different interest periods (Az. 1 BvR 2237/14 and 1 BvR 2422/17).

That is why tax offices have been issuing these since May 2019 new notices of interest in terms of interest rates only provisionallyso that after a decision by the constitutional judge they will issue the notices can subsequently change (Federal Ministry of Finance, letter dated May 2, 2019, Federal Tax Gazette I p. 448).

A Objection is therefore against an interest notice with this provisional notice not necessary. The provisionality applies to all initial rates of interest of 0.5 percent per month - both for arrears and reimbursement interest.

It is conceivable that the Federal Constitutional Court will classify the tax office interest as too high. This could mean that taxpayers who have received excessively high interest rates retrospectively return part of it to the tax office repay would have to.

Tax advisor Christian Herold from Steuerrat24.de explains in his tax savings letter September 2019 that a change in the interest rate setting at the expense of the taxpayer due to the principle of Protection of confidence (§ 176 Tax Code) is questionable, but still quite likely. He recommends filing an appeal against the provisional nature of the reimbursement interest. However, the tax office will probably reject this.

If you do not want to pay any additional interest, at least for the time being, you can submit an application for suspension of execution (AdV) put. Limit your application to the interest period from April 2012 - that is, to additional interest from the tax year 2010. For interest periods before January 1, 2012, the hurdle for an AdV is significantly higher. You would have to convince the tax office that the execution in your case would result in undue hardship. Otherwise, it will likely reject your application.

In the case of the interest rate problem no riskto be charged suspension interest in the event of an unsuccessful legal remedy (Section 233 sentence 2 AO). Therefore you can apply for the AdV here.

Tax return helper

Udo Reuss

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

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