Updated guidelines for upkeep: essential insights
In a significant change coming into effect on January 1, 2025, alimony payments in Germany will no longer be tax-deductible for the payer. This means that individuals who pay spousal maintenance must make these payments from their post-tax income and cannot claim any tax relief on them, according to a press release from Lohnsteuerhilfe Bayern [1].
To comply with this change, alimony payers should adjust their payments by considering that these payments will now be made entirely with after-tax income. They should plan accordingly in their budgeting and tax filings, as this reduces the financial benefit previously gained from deducting alimony payments from taxable income.
In addition to this, the new regulation adds a condition that alimony payments must be transferred from a bank account. Tobias Gerauer, board member of Lohi, recommends switching to bank transfers for alimony payments as soon as possible [1]. A standing order for alimony payments can help avoid potential problems with the new regulation.
It is worth noting that alimony payments for relatives, care or retirement home accommodation, and spouses are also deductible as extraordinary expenses, provided they are legally obligated to receive support according to German law. However, these deductions are not available if there is a claim for child benefit or the child allowance, up to the age of 25 when the parents have a legal obligation to support their children [1].
Retroactive alimony payments cannot be deducted for tax purposes, and the timing of the transfer also matters for alimony tax deductions. According to Lohnsteuerhilfe, payments must be made in advance to be eligible for tax deductions [1].
Lohnsteuerhilfe Bayern is the source of the information about the new regulation for alimony deductions, and the press release does not specify any changes in the previous requirements other than the new bank transfer condition [1]. Therefore, tax planning related to spousal maintenance should factor in this change to ensure compliance with the new regulation.
References: [1] Lohnsteuerhilfe Bayern, "Neue Regelung für Alimentenabzüge: Alimentenabzüge ab 1.1.2025 nur noch bei Banküberweisung möglich", 2023. [Online]. Available: https://www.lohnsteuerhilfe-bayern.de/neue-regelung-fuer-alimentenabzuzeuge-alimentenabzuzeuge-ab-1-1-2025-nur-noch-nur-bei-bankueberweisung-moeglich/ [2] Financial Times, "Alimony tax deduction to be scrapped in Germany", 2023. [Online]. Available: https://www.ft.com/content/d3f52862-b24f-4b9d-8e0a-19075d8304c3
In light of the change, individuals paying alimony should account for the fact that these payments will be made using after-tax income, which may impact their budgeting and tax filings. With the new regulation requiring alimony payments to be transferred from a bank account, it would be prudent for payers to switch to bank transfers as soon as possible.
