Why don't banks pay taxes?

Saver lump sum

801 euros are tax-free on investment income

Udo Reuss
Tax Expert As of April 21, 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.

  • Since 2009, capital income has been taxed at a flat rate of 25 percent withholding tax plus solidarity surcharge and, if applicable, church tax.
  • These include interest income, profits from stock sales, and dividends, among others.
  • You don't have to pay any taxes for capital income of up to 801 euros per year. This so-called saver lump sum is doubled when spouses are assessed together.
  • In return for the flat-rate taxation, you may not deduct any expenses related to investment income as income-related expenses.
  • If your personal tax rate is below 25 percent, you should voluntarily fill out the KAP annex in your tax return. Capital income will then be taxed at your lower tax rate.
  • With a non-assessment certificate, you prevent the bank from withholding tax. You can apply for this if you probably don't have to pay taxes due to your low income. This is especially true for retirees, students and schoolchildren.

Every private investor may use up to 801 euros tax-free to keep. For a married couple who can be invested together, double the amount applies, i.e. 1,602 euros. This so-called Saver lump sum has existed since 2009. It was introduced together with the final withholding tax. It includes not only interest and dividends, but also profits from the sale of investments and futures.

No income-related deduction possible

Since the introduction of the saver lump sum, private investors have not been allowed to deduct business expenses (such as custody fees) from tax. Even if you took out a loan to buy securities, the interest costs are not deductible.

The final withholding tax (interest tax) applies to interest, dividends and proceeds from the sale of securities that have been received since January 1, 2009. The bank withholds the flat tax rate of 25 percent (plus solidarity surcharge and church tax) and pays it to the tax office.

Consider the saver lump sum directly at the bank

So that the bank that pays out the investment income also takes the saver lump sum directly into account, you as the investor must send the bank an exemption order. For this you need your tax identification number.

Almost all banks and savings banks provide information on exemption orders on their websites. If there is neither an exemption order nor a non-assessment certificate or the investment income exceeds the saver lump sum, the bank deducts 25 percent withholding tax plus solidarity surcharge and, if applicable, church tax from the income. Spouses who are assessed together can generally only submit applications for exemption together.

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Low wage earners should complete Appendix KAP

If your personal income tax rate is below 25 percent, the withholding tax would be “too expensive” for you. You can avoid this and instead tax your capital income at your normal, lower tax rate. To do this, however, you have to list your capital income in the KAP annex of your tax return.

Full tax on capital income in business assets

The withholding tax does not apply to capital assets held in the business assets of companies or self-employed persons. This means that the interest and dividends in the business assets are fully taxable. On the other hand, operating expenses (e.g. financing costs for the purchase of the securities) can also be deducted completely.

Non-assessment certificate for low income

If savers are a Non-assessment certificate (NV certificate), you can even receive interest and dividends above the saver lump sum without tax deduction. The non-assessment certificate is suitable for low-wage earners and therefore particularly for pensioners, schoolchildren and students. With this document, the tax office certifies that the saver is unlikely to have to pay any income tax. If it is available to a bank, it does not need to withhold the final withholding tax.

Example: A student has wages of no more than 10,744 euros in 2021. After deducting the 1,000 euros employee lump sum, he remains exactly 9,744 euros. This corresponds exactly to the basic tax-free allowance for 2021. Those who do not have higher income do not have to pay any taxes at all.

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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