For Businesses and Citizens: The 4th Coronavirus Tax Relief Act

The Fourth Coronavirus Tax Relief Act has been introduced. On February 16, several measures were adopted that will benefit employees and businesses. For example, simplified depreciation rules are intended to ease the financial burden on companies. The goal of this policy is to stabilize the economic recovery and strengthen the economy. Your tax advisor in Düsseldorf and Oberhausen explains the changes in this article.

The declining balance depreciation method has been extended by the legislative decision. This is intended to help companies secure their own liquidity when making investments. Employees are being supported by another measure: the home office allowance is being extended. Additionally, nursing staff in hospitals and long-term care facilities can receive up to 3,000 euros in a tax-free COVID-19 bonus in addition to their regular salary.

Declining-balance depreciation

In the wake of the COVID-19 crisis, the federal government reintroduced declining balance depreciation (Afa) for the years 2020 and 2021 for movable fixed assets. The fourth Coronavirus Tax Relief Act provides for the extension of this regulation through the end of 2022. Furthermore, assets acquired or manufactured between January 1, 2020, and December 31, 2022, may be depreciated on a declining balance basis.

In contrast to straight-line depreciation, declining-balance depreciation allows for depreciation of up to two and a half times the value, though not exceeding 25%, per year. Starting in 2023, assets are to be depreciated exclusively on a straight-line basis again, i.e., in equal annual amounts over their normal useful life. Leading business associations are advocating for indefinite declining-balance depreciation.

Extended loss carryback

Extended loss carryback is set to be extended through the end of 2023. The maximum amount for loss carryback will be increased for 2022 and 2023. It amounts to ten million euros for the period, or 20 million euros in the case of joint assessment. The loss carryback is to be permanently extended to two years starting in 2022 and will apply to the two immediately preceding years. Business associations are advocating that losses be allowed to be carried back for at least three years.

Investment Deadlines

Small and medium-sized enterprises may claim the investment deduction (IAB). Planned investments may thus be declared off-balance-sheet as a tax-free reserve. Planned expenditures for the next three years, such as for a new machine, become relevant in this way. A portion of the costs can already be deducted when calculating profits via the investment deduction. For anticipated acquisition or production costs, an IAB of up to 50 percent can be claimed, provided the business makes a maximum profit of 200,000 euros.

The COVID-19 crisis has halted many corporate investments. After the three-year period expired, companies faced the threat of retroactive settlement of the investment deduction. For eligible investments with a deadline of the end of 2020, an extension to the end of 2021 was initially agreed upon. This deadline was then extended by one year to the end of 2022 and is now set to apply for another year, i.e., until the end of 2023.

This allows companies to make up for their investments later without tax consequences. The tax investment deadlines for reinvestments under Section 6b of the Income Tax Act are also to be extended by one year.

Work-from-Home Rule

The home office allowance has also been extended. The current regulation is set to remain in effect for one more year, until the end of 2022. You can claim five euros per day worked from home, for a maximum of 120 days. This results in a maximum amount of €600 per year. However, this amount falls under the category of income-related expenses, for which all taxpayers are granted a flat allowance of €1,000. Ultimately, the work-from-home allowance is only worthwhile for those who have total income-related expenses exceeding €1,000.

The traffic-light coalition’s plan is to make the home office allowance permanent. The extension is also considered appropriate by the leading business associations. However, it should be noted that people often work from home for more than 120 days a year. The associations therefore propose examining an increase in the number of eligible days in mid-2022.

More time for tax returns

The filing deadline for the 2020 tax return has been extended by another three months. The deadline is now August 31, 2022. The filing deadlines for 2021 and 2022 are also set to be extended until June 30, 2023. That is four months longer than usual. In 2024, the deadline is April 30. This corresponds to a two-month extension.

The German Association of Tax Advisors is calling for the filing deadline for 2021 tax returns to be extended at least until the end of August 2023 as well. Tax firms remain heavily involved in reviewing and processing applications for bridge aid.

Coronavirus Bonus for Care Workers

Employees in the care sector can look forward to the possibility of a tax-free special payment. Care workers in hospitals or long-term care facilities are expected to be able to receive up to €3,000. The money must be credited to the recipient’s account by December 31. Bonus payments from employers to their employees in all other sectors totaling up to €1,500 have been tax-free since March 1, 2020.

The regulation for a COVID-19 bonus remains in effect until March 31, 2022. It should be noted that the special payment is not available annually, but remains tax-free only once during the aforementioned period. The leading business associations are advocating that this COVID-19 bonus, similar to the bonus for nursing staff, be payable until December 31, 2022. The German Association of Tax Advisors would even welcome it if the new tax-free bonus of up to €3,000 could be granted regardless of industry. Among other things, the association has constitutional concerns.

Subsidy for Short-Time Work Benefits

The tax-free subsidy for short-time work benefits is also being extended by three months. This means the regulation now applies until the end of March 2022. It should be noted that this regulation may lead to a significant amount of additional work in payroll accounting.

Tax deferrals

In its letter dated January 31, 2022, the Federal Ministry of Finance had already extended tax deferrals, advance tax payments, and granted a stay of enforcement. Companies severely affected (economically) by the COVID-19 pandemic may apply for tax deferrals. These payments must be due by June 30, 2022. Subsequent deferrals with installment payment agreements are possible until September 30. When reviewing the applications, tax authorities are not expected to impose strict requirements.

A deferral of enforcement until June 30, 2022, will be granted to companies whose taxes are due by March 31, 2022, but which can demonstrate that they have been negatively impacted economically. Affected companies may also, upon request, have their advance payments for income and corporate taxes for 2021 and 2022 adjusted.

Social Security Contributions

Statutory health insurance funds will continue to accommodate businesses as before. The simplified deferral of social security contributions can be requested again. This applies to companies facing financial difficulties due to the COVID-19 crisis. The new regulation applies to a deferral from February through April 2022. There are several requirements according to the GKV-Spitzenverband. These include that economic aid has been applied for but not yet received, and that the company is experiencing serious financial difficulties.

Your Tax Advisor in Düsseldorf and Oberhausen

If you have any questions about the new Coronavirus Tax Relief Act, please speak with your tax professionals. As your tax advisors in Düsseldorf and Oberhausen, we are happy to assist our clients with any tax-related inquiries. Contact us to schedule a consultation.