Income Tax Advance Payments

Definition: What are income tax prepayments? An income tax prepayment is an advance payment on the income tax to be paid in the current year, which is payable quarterly to the tax office.

It is mainly obligatory for self-employed persons and tradesmen, but in certain cases, it can also be applied to employees who pay income tax. The advance payment of income tax is regulated in § 37 EStG.

Who has to make income tax prepayments?
From when must income tax be paid in advance?
How are the advance payments calculated?
Can you influence how much the advance payment is set?
Can the tax office change the amount of advance payments?
When must the income tax advance payment be paid?
What happens if advance payment is set retroactively?
How are the deductions offset against income tax?

Who has to make income tax prepayments?

In principle, all taxpayers who generate income from business operations or from self-employment must make advance payments of income tax, since, unlike employees, from whom wage tax is deducted, they do not have a monthly withholding of tax from their income.

In addition, an advance payment notice is often issued if there is other income from which no or too little tax is deducted, for example:

for married couples with tax classes III and V
Income from renting and leasing
Pension income
Investment income from abroad and therefore not subject to capital gains tax
tax-free income, which increases taxes through tax progression (e.g. unemployment benefit, parental allowance)

In principle, any constellation that has resulted in the taxpayer having to pay taxes in arrears in the previous assessment period can result in advance payments of income tax.
When does income tax have to be paid in advance?

Advance payments on income tax are only determined if the tax burden in the previous assessment period was at least 400 euros and therefore at least 100 euros would have to be paid in advance per quarter (§ 37 Paragraph 5 Sentence 1 EStG).

If the annual income is below the basic tax-free allowance (2020: 9,408 euros), the tax office does not levy income tax and therefore does not charge any advance payments - even for self-employed persons or tradespeople.

How are the advance payments calculated?

The basis of assessment for the advance payments is the taxable income in the previous year. Some expenses are taken into account (e.g. advertising costs). Taxes are calculated on the basis of this assessment basis. These are quartered and determined quarterly by the tax office as an advance payment on the income tax. The solidarity surcharge and church tax are calculated in the same way. However, the amount of the advance payment on the church tax is communicated separately in a church tax advance notice.

Self-employed persons and tradesmen who have only recently started their activities must fill out a tax registration form after registration and indicate their profit expectations. This forecast serves as the basis for calculating the amount of the advance payment.
Is it possible to influence how much the advance payment is set?

Since the tax office sets the amount of the advance payment on the basis of the income of the previous year, it is possible that it will be too high for the current year. For example, if a self-employed person made a higher profit than usual in the previous year due to a special project, he or she can have it reduced for the next year upon request.

For this purpose, an informal application is sufficient, ideally accompanied by appropriate evidence, for example of declining profits or planned investments. If the tax office accepts the change, the clerk estimates the taxes due again and sends a new notice of advance payment.

Can the tax office change the amount of advance payments?

An advance payment notice is always subject to verification. This allows the tax office to correct the amount at any time if it receives new information about the taxpayer's income or family situation.

When must the income tax prepayment be paid?

The payment dates are legally defined in § 37 paragraph 1 sentence 1 EStG:

March 10th
June 10th
September 10th
December 10th

If the taxpayer does not comply with these, the imposition of late payment surcharges must be expected.

What happens if advance payment is subsequently assessed?

If the tax office only determines the advance payment after the year has already been running for a few months, the taxpayer may have to pay several advance payments at once.
Example: Mr. Müller becomes self-employed on February 1. He does not receive the advance payment notice for 1,200 Euro per quarter based on his profit forecast until the end of August. Mr. Müller now has to pay the prepayments for the first, second, and third quarters at once on September 10. The fourth installment is due on December 10.

How are the deductions offset against income tax?

The advance payments made during the year are set off against the tax calculated in the tax return. This is automatically taken into account in the tax assessment by the tax office. It is not absolutely necessary to indicate this in the tax return. As a rule, this results in repayment or subsequent payment.

Example: Mrs. Maier has paid a total of 2,500 Euro income tax in advance in one calendar year. On the basis of her tax return, the tax assessment shows a tax liability of only 2,200 Euro. She receives a refund of 300 Euros.