Families with children are relieved by child benefit and child allowance. When you file a tax return, the tax office calculates which option is better for you in terms of taxation by means of the so-called favourable tax assessment. This article explains exactly how this works and how you can enter child benefit and the child allowance in the Taxfix app.
The good news first: Child benefit and child allowance are usually calculated automatically in the Taxfix app. Our app also carries out the favourable tax assessment check for you.
Content
- What is the difference between child benefit and child allowance?
- What is child benefit (Kindergeld)?
- How long am I entitled to child benefit?
- How much is child benefit?
- The Corona Child Bonus
- What is the child allowance (Kinderfreibetrag)?
- The child allowance in the annual payslip
- Can I change the child allowance?
- The favourable tax assessment (Günstigerprüfung)
- How do I enter child benefit and child allowance in Taxfix?
What is the difference between child benefit and child allowance?
Child allowance (Kinderfreibetrag) and child benefit (Kindergeld) are two ways of providing financial support for families with children. The main difference between the two is:
- Child benefit is paid directly to a parent each month after an application has been made
- The child allowance is taken into account when calculating income tax and is not paid out
It is important to know that you can only use one of the two. In the course of a year, you first receive child benefit. When calculating your income tax each year, the tax office then determines which option is more favourable for you and then takes into account either the child allowance or the child benefit you received. You do not have to apply for this favourable assessment (Günstigerprüfung) and it is carried out automatically.
What is child benefit (Kindergeld)?
If you are expecting a child, you should apply for child benefit. This is a state subsidy that ensures the basic care of your child. Child benefit is paid monthly to all families, regardless of income.
You can apply for child benefit at the family benefits office (Familienkasse) that is responsible for your place of residence. You can apply online at your family benefits office, usually on the website of the Federal Employment Agency (Bundesagentur für Arbeit).
In general, each parent is entitled to half of the child benefit, even if the amount is only paid to one of them. If the parents have separated, the child benefit is taken into account in the amount of maintenance to be paid by the parent with whom the child does not live. In this case, both parents are still entitled to child benefit.
How long am I entitled to child benefit?
You are entitled to child benefit at least until your child reaches the age of 18.
In addition, you can receive child benefit until your child reaches the age of 25 if your child is in training or studying. For children who are looking for work, the child benefit entitlement is extended until they reach the age of 21.
Children with disabilities are only entitled to child benefit beyond the age of 25 if they cannot support themselves and the disability occurred before they reached the age of 25.
How much is child benefit?
Child benefit is graded according to the number of children and increases almost every year. At present it amounts to
- for the first and second child: 219 euros per month each
- for the third child: 225 euros per month
- for the fourth and each further child: 250 euros per month each
The Corona Child Bonus
Due to the Corona pandemic, the Federal Government decided on a family bonus of 300 Euros. This applied to every child for whom you received child benefit for at least one month in 2020. In 2021, there was also such a child bonus in the amount of 150 euros per child. For tax purposes, the bonus is treated like child benefit.
Further detailed information on state family benefits such as child benefit and child bonus can be found online on the family portal of the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth.
What is the child allowance (Kinderfreibetrag)?
Unlike child benefit, the child allowance is not paid directly to you. It only comes into play when the tax office determines your income tax each year. In this process, the tax office determines whether the use of the child allowance is advantageous for you. This favourable assessment (Günstigerprüfung) is explained in more detail below.
You can use the child allowance as long as you are entitled to child benefit.
Like child benefit, the child allowance usually increases every year. Currently, it is 8,388 euros per year for each child.
The child allowance in the annual payslip
As an employee, the child allowance is noted on your annual payslip. This happens automatically when your child is born, because the tax office forwards the child allowance to your employer. You do not have to do anything to have the tax-free amount entered.
For adult children in education, you have the right to choose:
You can either apply for the child allowance directly at the tax office - it will then appear on your annual payslip. However, you can also simply claim it by declaring your child in your tax return.
The child allowance does not affect your monthly wage tax. However, it does reduce the solidarity surcharge and, if applicable, the church tax. It is then taken into account in the tax return when calculating your income tax.
How is the child allowance shown in the annual payslip?
As a rule, each parent receives half of the child allowance per child. On your annual payslip, a child allowance of 0.5 is noted for one child.
If you have two children with your partner, your income tax certificate will show a child allowance of 1.0. For each child, this is an allowance of 0.5.
If you are jointly assessed, your child allowance will be applied to your joint income when you file your tax return.
Can I change the child allowance?
Under certain conditions, you can change the child allowance and thus claim the full child allowance. In this case, the child allowance for one child would be 1.0.
You can change the child allowance if:
- One parent lives abroad
- The other parent has adopted the child (stepparent)
- The other parent does not pay at least 75% of the child support
- The father of the child is unknown
- One parent is deceased
In the Taxfix app, you can claim the full child allowance if one of these cases applies to you. The app will point you to it.
The favourable tax assessment (Günstigerprüfung)
While child benefit is paid to you monthly, the child allowance is only taken into account in the annual calculation of your tax. Since you can only use one of the two, the tax office determines which is more favourable for you when calculating your tax. This favourable assessment (Günstigerprüfung) is carried out automatically, and the Taxfix app also carries out the assessment for you.
Families with small and medium incomes benefit most from child benefit. The child allowance is usually only worthwhile for married couples with a joint gross income of around 60,000 euros, and for single parents with a child from around 30,000 euros.
This is how the favourable tax assessment works
When you submit your tax return, the tax office first calculates your taxes taking into account the child allowance and then without the allowance.
If the difference between the two calculations is higher than your entitlement to child benefit, then the child allowance is more favourable for you. In this case, the child allowance is deducted from your income when calculating your tax and the child benefit is added to your tax.
If the difference is smaller than your entitlement to child benefit, then child benefit is more favourable for you. In this case, neither the child allowance nor the child benefit is taken into account when calculating your tax.
By the way, it is irrelevant for the tax office whether you have applied for and received child benefit or not. Only your entitlement to child benefit counts. Entitlement means that you meet the requirements for receiving child benefit.
Child allowance not listed? Here's how the favourable tax assessment looks like in your Taxfix tax calculation
If child benefit is more favourable for you in terms of tax, neither the child allowance nor the child benefit will be listed in your tax calculation. In this case, the allowance was not taken into account to reduce tax, and the child benefit was not listed as a benefit received. There are therefore no values for either item in the overview of the tax calculation in the Taxfix app. In the majority of cases, child benefit turns out to be more favourable for the taxpayer.
If the child allowance is more favourable, it is the other way round: both the child allowance and the child benefit are then listed in the tax calculation and have a value.
This means that in this case the child allowance was taken into account to reduce tax, but at the same time the child benefit was added as a benefit (because you can only benefit from either the child allowance or the child benefit). This is ultimately more favourable for you from a tax point of view.
How do I enter child benefit and child allowance in Taxfix?
You can enter information on children in the Taxfix app in the "Family" category.
Based on the information you enter, the app automatically calculates and takes into account your child benefit entitlement (incl. Corona bonus). Usually, you do not have to enter the child benefit received.
In some cases, for example if the children are already of age, our app asks for the period or the number of months in which a child benefit claim existed. This question always refers to the tax year you are currently working on.
In some rare cases, the calculated annual child benefit is also displayed. If this is the case for you, please check the amount and correct or confirm it.
The child allowance is always automatically taken into account in our app and does not need to be entered.
If a transfer of the child allowance comes into consideration, the app asks whether you want this.