Child allowance and child benefit are two different ways of providing financial support for parents. What is a child allowance? How much is it and can it be deducted from taxes? What should be considered with the child allowance?
This and much more will be answered in this article.
Table of contents
What Is The Child Allowance?
The child allowance is a direct tax allowance. This can reduce your income tax payment burden by the expenses that affect your allowance. In 2019, the regular child allowance is EUR 2,490 for single parents and double that amount if you file your tax return jointly with your spouse. In addition, there is a sum of EUR 1,320 for education, training, and care expenses.
This amount is also doubled in a joint tax assessment of married couples. So you can write off a total annual allowance of 7,620 EUR in a joint tax return of married parents. The sum results from the classic child allowance and the tax allowance for the additionally mentioned expenses.
Why You Have To Apply For The Child Allowance
You are entitled to the child allowance. However, you must apply for the child allowance, as it is not automatically allocated to you. The application is made directly after the birth of your child and is submitted to the tax office.
In this regard, there is an application for income tax reduction, which ensures you the advantage that you are not affected by the annual review of the benefit from child allowance or child benefit payment. The application is simple. You only need to fill in the prefabricated form available at the tax office and send it back to the tax office.
What Is Child Benefit?
Child benefit is an advance on the child allowance. You can apply for child benefit immediately after the birth of your child so that you will receive the amount monthly. The amount of child benefit is graduated according to the number of children.
For the first and second child you will receive 204 EUR per month, for the third child 210 EUR, and for the fourth child 235 EUR per month. Since it is an advance payment on the child allowance, you will not get both tax benefits.
In principle, you are better off with the monthly payment, since the expenses for your child are also incurred per month and not after the end of a tax year.
Where You Can Apply For Child Benefit
You can apply for child benefit in three different ways. Whether you are a job-seeker or a high-income earner, child benefit is independent of income and can therefore be applied for in any case.
The Familienkasse is the right contact and the place where you can apply for child benefits. Important: You do not have to reapply annually. Once the child benefit has been approved, it will continue to be paid until a change in circumstances makes the child benefit ineligible.
This is the case, for example, when your child reaches the age of 18 or starts working earlier.
The Differences Between Child Allowance And Child Benefit
The primary difference relates to the benefit itself. The child allowance is paid monthly in a fixed amount to your account. The child allowance is practically a “credit” that you can only claim at the end of the year via your tax return.
There is no provision for payment of the child allowance. The second difference is based on the factors payment and credit. You receive a child allowance every month, while you can claim the tax-free allowance (child allowance) only in the annual tax return.
Attention: As a non-taxpayer you do not need to claim a child allowance. This is only for tax reduction, which you cannot get without tax liability.
Why The Child Allowance And The Child Benefit Are Coupled
Here it is either or. It is not possible to receive a monthly payment AND the child allowance. In individual cases and if you have not applied for the tax-free allowance, the tax office will check annually whether you are more tax-efficient with child benefit or with the child tax-free allowance.
The tax office automatically checks whether you are more tax-efficient with child benefits or with the tax-free allowance without you having to do anything. Consider the child benefit payment as an advance on the tax allowance. This is the linkage that allows only one option to be considered.
Tax Allowance For Families With Children
Families with children have more expenses than childless couples. Germany therefore provides the possibility for parents to apply for child allowance and to get a financial relief through the child allowance.
Even if the sums involved are not huge, no eligible person should forego applying for them. Net taxpayers can apply for child benefits, or apply for the child allowance. Recipients of social benefits can primarily apply for child benefits and spend the monthly payment without deduction from their own social benefits.
The Graduation Of Child Benefit According To The Number Of Children
Child benefits are claimed by parents for each child. The amount per child per month is fixed and increases with the number of children living in the household. An annual adjustment is practiced as expenses also increase per child due to inflation and the cost of living increases. To ensure that social benefit recipients are not worse off than net taxpayers, the amount of the child benefit is not included in the calculation of the social benefit.
Is The Child Benefit Recorded For Tax Purposes?
Child benefit is recorded for tax purposes. Nevertheless, child benefit does not have an adverse tax effect because it is not included in regular income. Even though it is a benefit received, child benefit does not count as income or earnings in the true sense of the word and thus never requires an additional tax payment.
Claiming Child Benefit: Also Possible Retroactively?
The child allowance and the child benefit can be applied retroactively. Since the payment of child benefits is intended to cover the monthly expenses for your child, you should apply as early as possible and take into account that the processing may take several weeks.
How Long Child Benefit Is Paid
In principle, you are entitled to child benefits until you reach the age of 18. Changing circumstances can both reduce and extend the payment period. For the money to be paid, the child must live in your household and must not earn his or her own living.
If your child is studying, payment is possible until the age of 25. In this case, you must submit a new application and all required documents. Without the application, the entitlement expires automatically. Continued payment without a new application will not be made.
Who Is Entitled To Child Benefits?
In principle, anyone who lives in Germany is entitled to child benefit payments. This also applies if the child lives abroad due to studies or training. In the case of higher income, the child allowance is considered a better option.
However, the condition for this is also that there is a claimant. Important: The possibility to claim child allowance and child benefit is not linked to a maximum salary per year.
There is a misconception here, because many parents think that the allowance for families with children is only paid if the income is low or if the child receives social benefits.
Child Benefit In Case Of Divorce – Which Parent Is Entitled To It?
The parent who is also entitled to custody is eligible. In the case of divorce without termination of custody of one parent, the parent with whom the child has his or her regular place of residence according to the right of residence determination is entitled to receive the child benefit.
A division of child support is possible in exceptional cases, provided that you practice the parity alternating model and the child lives with both parents equally after the divorce. This model is rather unusual in Germany and many parents are not aware of it.
What Is The Favorable Tax Assessment By The Tax Office?
The Günstigerprüfung is applied by the tax office and is used to determine the advantage for you as a taxpayer. If you have a high income, the child allowance is the better solution, while if you have a low income or receive social benefits, you should apply for child benefits. You will not be informed about the favorable tax assessment in advance. However, you can exclude it by opting for the tax-free allowance right from the start.
You have the choice whether you want to apply for and receive child benefit or apply for the child allowance and receive the benefit in the annual financial statement. For all options in the tax law, a favorable test is carried out. The tax office will show you which option is more favorable for you from a tax point of view and thus, of course, also more cost-saving.
Child Allowance: The Checklist
- Apply in good time.
- Submit all documents.
- Enclose proof of income and benefits.
- Check tax allowance: Single application or joint assessment.
Single Or Joint Assessment – These Are The Facts
Various factors play an equally important role here. If you file a joint tax return with your spouse, it will be easier for you to file your return and you will save a lot of time. Your income will be added together and the child allowance and allowance for education and more will be doubled.
In the case of a single assessment you do not save taxes, but you need more time to calculate your income and expenses. If you have your tax return prepared by a tax advisor, the expenses will also be doubled in the case of a double assessment.
Conclusion: Really Saving Taxes With Child Allowance
Neither the child benefit nor the child allowance is counted as income in your annual tax return. Nevertheless, there can be differences in the tax savings. In many cases, the tax office comes to the conclusion that you are better off with the child allowance than with the monthly child benefit payment. You can therefore face the favorable tax review with an open mind.