What is the solidarity surcharge? Solidarity surcharge review

Basic Information

Solidarity surcharge (Solidaritätszuschlag also known as "Soli"), the East-West German solidarity levy. Initially imposed for one year in 1991, the solidarity surcharge was originally intended to finance the various "extra burdens" arising from the Gulf conflict that year, as well as support for the countries of Central, Eastern and Southern Europe and for German reunification. After a two-year suspension in 1993 and 1994, the solidarity surcharge was imposed again throughout Germany in 1995. Since 1995, the solidarity surcharge has been in place (indefinitely) to cover the costs of German reunification. Since 1998, the rate has been 5.5% of the income tax.

Object of levy

Both individuals and enterprises are subject to this additional tax, and the tax base is the income tax payable by individuals and enterprises in the same period, with a tax rate of 5.5%.

However, individuals are only subject to a solidarity surcharge if their monthly tax payments exceed €81 (for individuals with I, II, IV, V, VI tax cards) or €162 (for individuals with III tax cards).

calculate

The solidarity surcharge is levied on 5.5% of the corporate income tax and personal income tax assessment amount; the calculation of the solidarity surcharge for individuals is also affected by two important factors, namely Kinderfreibetrag (child tax exemption) and BEA-Freibetrag (Freibeträge für Betreuungs-, Erziehungs- oder Ausbildungsbedarf tax exemption for care, education, etc.)

status quo

[1] German Vice Chancellor and Finance Minister Olaf Scholz said on the 14th that the German government has reached an agreement to mostly stop levying the "solidarity surcharge" aimed at supporting economic development in the eastern region from 2021.

Scholz said that according to different income conditions, 90% of taxpayers in Germany will not have to pay the "solidarity surcharge" from 2021, 6.5% of taxpayers will pay a reduced amount of "solidarity surcharge", and 3.5% of taxpayers will pay the "solidarity surcharge" at the original amount.

In recent years, there have been calls in Germany to abolish the "solidarity surcharge". Some taxpayer organizations believe that the "solidarity surcharge" has made some projects overly dependent on subsidies and has failed to promote the development of the eastern region. Reducing the "solidarity surcharge" can free up this part of the funds and allow them to enter the consumption and other investment areas.

References

• 1. Solidarity surcharge to be largely abolished in 2021: German government