Meaning of § 3 EStG Part II

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What is the difference between an allowance and an exemption limit?

An exemption is an amount that is always excluded from taxation. The tax base is reduced by the tax exemption. If the tax exemption is exceeded, you do not have to tax the entire income. This is only necessary for the part by which the tax exemption is exceeded. You should note that there are also tax exemptions in social insurance .

Type of allowance Regulated by
Basic tax allowance Section 32a (1) No. 1 EStG
Child allowance Section 32 of the Income Tax Act
Allowance for part-time activities Section 3 No. 26 EStG and Section 14 (1) SGB IVSection 3 No. 26a EStG and Section 14 (1) SGB IV
Discount allowance Section 8 (3) of the Income Tax Act
Retirement benefit Section 24a of the Income Tax Act
Pension allowance Section 19 (2) of the Income Tax Act
Allowance for health promotion 600 euros annually per employee (500 euros by 2019)
Dynamic allowance in statutory health insurance for the settlement of pension payments from 2020 (1/20 of the monthly reference value)

In addition, the allowances can be divided into groups.

Exemptions that are already included in the corresponding income tax brackets

  • This concerns the basic tax allowance for income tax classes I, II, III and IV.
  • In addition, the employee lump sum for wage tax classes I, II, III, IV and V.
  • These allowances also include the relief amount for single parents in income tax class II
  • the flat rate pension in all income tax brackets
  • the special expenses lump sum for wage tax classes I to V.

Allowances for which the employer must check whether the requirements are met:

  • Employees receive a retirement benefit if they have reached the age of 64 before the start of the calendar year,
  • In addition, a pension allowance and
  • Surcharge on the pension allowance

According to THEINTERNETFAQS, the exemption limit, on the other hand, is an amount up to which a tax base remains without tax collection . If you exceed this exemption limit, however, you have to pay tax on the full assessment basis. The case here is that the legal consequences apply to the entire amount and not just the amount by which the exemption limit is exceeded. The exemption limits, like the exemptions, are also available in social insurance. Examples of exemption limits are.

  • Exemption limit for payments in kind per month (also known as the de minimis limit)
  • Exemption limit for employer loans
  • Exemption limit for attentions
  • Exemption limit for food stamps or restaurant checks, which are accepted outside of the company as part of payment
  • Limit amount for group accident insurance

What does the ABC form mean according to § 3 EStG?

Which tax-free income is available and which is subject to the progression proviso is not always easy. All of this is regulated under Section 3 of the Income Tax Act and in Section 32b of the Income Tax Act . In order to be able to classify exactly what is valid for you, it is worth taking a look at the classification according to the ABC form . This is a kind of encyclopedia in which all tax-free income and income subject to progression exception are listed. This encyclopedia begins with severance payments and ends with supplements for night, Sunday and holiday work.


Everyone who earns their money in Germany is subject to the Income Tax Act. This is very simple in principle. Those who earn a lot pay a lot of taxes. Those who earn little pay little tax. Sounds simple, but the EStG is very complex to use. Section 3 of the Income Tax Act defines exceptions under which conditions the taxation of income does not apply. A distinction is made between tax-free and non-taxable income . In order to secure the subsistence level for every person in Germany, there is also the basic tax allowance. Up to this basic allowance, all income is basically tax-free.

Frequently asked questions about § 3 EStG

How much income is tax-free?

How much income is tax-free is determined by the state using the subsistence level. This is used by the basic tax-free allowance or tax-free income. A subsistence level of 9,000 euros per year applies to single people in 2020 and 18,000 euros per year for married people. Section 3 of the Income Tax Act regulates which types of income are otherwise tax-free.

Which income is tax-free?

Among the tax-free income that a taxpayer earns on his labor income, there are some that are not subject to the Income Tax Act and taxation. These cases are described and regulated in detail in Section 3 of the Income Tax Act.

What is non-taxable income?

All income that cannot be taxed under the Income Tax Act is called non-taxable income. They belong to the income that is not allocated to the seven types of income according to the EStG. This concerns, among other things, lottery winnings or other winnings from games of chance.

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