What happens if you can't pay your tax bill in Germany?

For many employees in Germany who choose to submit a voluntary tax return, letters from the tax office will likely bring news of a juicy rebate.

For those in self-employment who still owe money to the taxman, the opposite is often true.

Anyone who has to submit a tax return in Germany - i.e. people who take on freelance work or those with rental income - have until September 2nd this year to submit their 2023 tax return if they are not working with a Steuerberater (tax advisor). 

That means that the Finanzamt, or tax office, will soon be calculating the amount of tax due and sending out letters with deadlines for upcoming payments.

For some people, the amount may come as a nasty shock - especially if you're expected to pay advanced tax for this year on top of last year's amount. You may even look at your bank balance and realise that your tax bill is simply unaffordable right now, which can understandably have you breaking out in a cold sweat.

If that sounds familiar, it's best to tackle the situation head on rather than burying your head in the sand. There are solutions that can be found, but a wait-and-see approach can land you in much deeper trouble in the long run.

I can't pay right now. What should I do? 

If your tax bill feels too burdensome and you will genuinely struggle to pay, there are a few options you can take. 

Whichever you choose, you should get in touch with the Finanzamt as soon as possible and let them know your situation. In some cases, you can ask for a simple deferral of the payment with what's known as a Stundenantrag (an application for deferral). 

READ ALSO: What happens if you miss your tax return deadline in Germany?

Generally, asking to pay your tax bill in instalments (Ratenzahlungen) is also a good solution. If you know how much you're able to pay up front, you can suggest paying this amount on the due date and request quarterly or monthly payments to clear the rest of it.

This demonstrates good will and a desire to pay on your part and can often help you get a more sympathetic hearing from the tax office - which is exactly what you need at a time like this! 

Of course, the Finanzamt isn't obliged to accept your request, but will take your current circumstances into account. For that reason, you may have to provide proof that you're unable to pay right now without running into difficulties. They may also take into account whether you've paid on time in the past. 

Be aware that if you are deferring your payment, you may be charged some interest on your tax bill. Usually this applies 15 months after the tax year and is set at a rate of 1.8 percent per annum, or 0.15 percent per month. 

To apply for an extension to your payment deadline, simply send a letter to your local tax office quoting your tax number, tax ID, extension request (or request to pay in installments) and the reason for it, along with any evidence you think might help your case. 

In the case of the larger tax debts or if you fear negative legal consequences, you can combine your request for payment in installments with what's known as a stay of execution (Vollstreckungsaufschub). This essentially postpones any enforcement measures that the tax office might take to recover the debts, which can buy you extra time. Once again, an informal letter arguing your case will normally suffice - though it's not guaranteed the tax office will accept your request. 

READ ALSO: Should you get a tax advisor in Germany - and how much does it cost?

What happens if I don't pay in time?

If you don't pay your tax bill in time - and don't communicate with the tax office beforehand - you can expect to be hit with fines. 

These are regulated by the German Fiscal Code and are currently set at one percent of tax owed per month. This is always rounded down to the nearest €50, meaning you won't get charged a late fee for bills of €50 or less.

As an example, if you owe €1,030 to the tax office and miss your deadline by three months, you'll be paying one percent of €1,000 each month. That means that by the end of the three months, you'll owe €1,060 to the tax office: €1,030 plus €30 in late fees. 

Over the longer term, however, consequences can be more extreme. For example, the tax office may decide to take enforcement measures such as freezing or seizing the money in your bank account or even taking part of your pension fund. 

How much should I expect my tax bill to be?

This can be a tricky question to answer, particularly if you need to pay advance tax payments, but generally the rule of thumb is that tax in Germany is set at a rate of between 14 and 42 percent of your taxable income (or 45 percent if you're earning over €277,000 or so per year). 

READ ALSO: The top tax deductions often overlooked by employees in Germany

Your taxable income as a freelancer or small business owner will be your revenue, or income, minus any business expenses and social security payments. 

In 2023, you could earn up to €10,908 without paying a cent of tax, and earnings above that are taxed on a sliding scale. In 2024, this Grundfreibetrag (tax-free allowance) goes up to €11,604.

The easiest way to calculate your tax burden in any given year is to enter your profits (revenues minus expenses) and the tax year into an online tax calculator. This will give you a good idea of how much your tax bill should be.

The tax office will generally assume that your earnings will be the same the following year, so don't be surprised if you also get a schedule of tax installments for 2023 along with your payment schedule for your 2022 tax bill. 

What if the tax office has made a mistake? 

If you think the tax office has made an error in your case, you can lodge an objection within one month of receiving your tax assessment notice.

The Finanzamt will then be obliged to review your case. In the best-case scenario, they will find in your favour and the tax burden will be reduced, but at the very least, you should have a bit more time to pay what you owe.

Of course, if your case seems more extreme or you're threatened with insolvency, it's worth seeking professional advice via a debt helpline or counselling service, such as Caritas. Many of these services aren't run for profit and may help ease your mind and find the best possible solution.