Annual Tax Reconciliation vs. Tax Return

Annual Tax Reconciliation vs. Tax Return

3/15/2021
Annual Tax Reconciliation vs. Tax Return
Annual Tax Reconciliation is often mistaken by many for Tax Return. And although the objective is essentially the same for both (to calculate the last year's taxes), we must, however, distinguish between the two concepts. This is particularly so because the Annual Tax Reconciliation cannot be processed for the person submitting the Tax Return, whether it is voluntary or compulsory.

So, what is the fundamental difference? Employee can (but does not have to) request from his employer to process the Annual Tax Reconciliation. On the basis of this request and the documents provided, the employer shall then process the Annual Reconciliation and incorporate the result of the calculation in the employee’s March salary, at the latest. The result might be either over- or under-payment or “zero”.

The Tax Return is submitted by the employee himself; the employer does not take any actions here in any way, he does not process the Tax Return, nor does he help the employee with the preparation. Of course, the employee can use the services of a Tax advisor, who will process his Tax Return.

However, the employee must submit the Tax Return by 31 March to the respective Tax office, from which he will then receive a tax refund or to whom he will pay the tax arrears. If the employee needs more time to process and submit the Tax Return, he will send a Notice of the extension of the deadline for submitting the Tax Return to the respective Tax office. The new submission deadline will be a maximum of 30. June or 30. September (if the taxpayer received income from abroad).

In both, the Annual Tax Reconciliation and the Tax Return for 2020, the employee can claim non-deductible parts of the tax base. In particular, the Non-deductible part for the Taxpayer; Non-deductible part per Wife/Husband; Non-deductible part for Supplementary Pension Savings (up to 180 €), Non-deductible part for Spa care. It is also possible to claim the Tax Bonus for a Child or the Tax Bonus for Interest Paid; and the employee can also donate 2% or 3% of the tax to any registered organization.

In the Annual Tax Reconciliation for 2020, it is possible for an employee, who had more than one employer in the previous year, to be able to choose any of them to process the Annual Tax Reconciliation. Until now, the employee could only request to process his Annual Tax Reconciliation the employer with whom he last applied the Non-deductible part of the Tax base.