Occupational disability insurance Tax return: What needs to be considered?
December 30, 2018
The contributions to the private occupational disability insurance (BU) are tax deductible in principle deductible from the income tax or income tax. However, this only applies up to a certain maximum amount, which is often already exhausted by other insurance premiums. If the policyholder later receives a disability pension, in many cases it also has to be taxed.
Contributions to the disability insurance in the tax return
The monthly occupational disability insurance costs can be deducted in the tax declaration as precautionary expenses. The corresponding annual contributions must be entered in the annex for pension costs. However, the insured person is only entitled to an actual tax advantage on one condition: the maximum amount of deductible pension expenses may not have been exhausted yet. The amount of this maximum amount depends on whether an independent or self-employed occupational disability insurance (SBU) or occupational disability insurance (BUZ) should be claimed in the tax return.
An independent occupational disability insurance (SBU) is concluded as a policy without additional benefits from other forms of insurance. This type of other pension expenses is subject to a deductible maximum amount of 1,900 euros for employees and civil servants, or 2,800 euros for self-employed persons . However, these limits also include contributions to the statutory health insurance and long-term care insurance . Since these contributions are also deducted via the tax return, there is rarely any room for deduction for the premiums for private occupational disability insurance. Because even with a gross monthly salary of 2,000 euros, the deductible maximum amount is reached.
The legislator wanted to counter this problem with a new regulation as of 1 January 2014. With the old-age provision improvement law (AltvVerbG) a basis was created, with which one can assert the contributions to the private occupational disability insurance to a higher extent in the tax declaration in the future, starting from the year 2025 even to 100 per cent. This should be possible within the scope of the deduction volume for the basic care (pension expenses): In 2017, a total of up to 84 percent of the maximum amount of EUR 23,362 (individuals) and EUR 46,724 (spouses in case of joint assessment ) are tax deductible.
Similar to the state-subsidized private old-age provision (Rürup pension), state-subsidized occupational disability insurance should also be set up. The tax advantage of such “base SBU” tariffs, however, is subject to strict conditions . Firstly, the insurance company must comply with certain rules on consumer protection. On the other hand, the insurance must offer a lifetime benefit.
But just before this requirement to have to pay a life-long pension in the event of insurance, many insurers are still afraid. The financial risk is far too high for them. Because as a standard applies to most occupational disability insurance a benefit period up to the 67th year of life, that is, up to the retirement age, from the statutory pension insured already refer to their statutory retirement. Insurance experts warn that those providers willing to take this financial risk would have to charge relatively high premiums for disability insurance in return . The state-subsidized BU tariffs could even cost three times as much as the unsubsidized tariffs.
An occupational disability insurance (BUZ) is always concluded as a policy in combination with another insurance, such as term life insurance. If a state-certified Rürup pension (basic pension) is combined with a private BU protection, then the BUZ is regarded as basic care in old age (pension expenses) and is subsidized by the state.
Basic pension expenses include contributions to statutory pension insurance and private or occupational pensions. In total, up to 84 percent of the maximum amount of EUR 23,362 (individuals) and EUR 46,724 (spouses in case of joint assessment) are tax deductible for the year 2017. The deductibility increases annually by two percentage points and by the year 2025 to 100 percent. However, the condition for this tax benefit for the basic pension BUZ is that more than 50 percent of the contributions are used for old-age provision.
Pension from occupational disability insurance in the tax return
Whether taxes on the occupational disability pension become due depends initially on the basic allowance. This takes into account the necessary minimum subsistence, which is guaranteed tax-free for every citizen of the Federal Republic. The tax- free allowance for 2016 was € 8,652 for individuals and € 16,944 for spouses in joint assessment . For the tax year 2017, it amounts to 8,820 euros (individuals) or 17,640 euros (spouses in the case of joint assessment ).
If you receive income up to this basic allowance in the year, you do not have to pay any taxes. If the income, including the disability pension, exceeds the tax-free allowance of 8,820 euros per year , taxes must be paid to the tax office.
In the case of the SBU, not the complete occupational disability insurance benefits are taxed, but only the income share, ie a certain percentage of the BU pension. How high this share is, depends on the pension duration . The longer the occupational disability pension is taken, the higher the income share. For each reference year, it increases by about 1 percent. The following table shows an example of how much of the BU pension must be taxed depending on the duration of the benefit:
|pension period||profit share|
|3 years||2 percent|
|5 years||5 percent|
|ten years||12 percent|
|20 years||21 percent|
|30 years||30 percent|
|45 years||42 percent|
The occupational disability pension from an SBU is only taxed to a certain extent, the revenue share. With the BUZ, however, the BU pension must be taxed independently of the duration of the pension, but dependent on the individual tax rate. This is often above the yield share.
Example: An unemployed person, including the pension under the occupational disability insurance, has a gross annual income of € 30,000. In the tenth year, if benefits from a BUZ are deducted, approximately 18.5 percent of the tax will be due in accordance with their individual tax rate. If, on the other hand, she pensions from an independent occupational disability insurance for the same period, she pays only about 12 per cent in taxes.
Overall, the tax benefits of the BUZ are therefore relative: While contributions are still paid, can save more taxes than the SBU due to the higher maximum amount. However, if it comes to pension payments, then with the BUZ more taxes may be due than with the SBU.