Help banks with tax payments

Tax deferral: who can postpone tax payments and how does it work?

© istock / filmfoto / 2018
by Tanja Viebrock, January 15, 2021

Hardly any money comes in, but the costs continue to run. The self-employed and companies, for example, have to continue paying taxes to the tax office even in times of crisis. If things get really tight, such as during the corona pandemic, you can postpone payments until later under certain circumstances. The federal government wants to avoid that entrepreneurs become insolvent. For private individuals, on the other hand, it is much more difficult to overturn tax debts. So who can get a tax deferral and how does it work?

To the point

  • A tax deferral only postpones the date on which the payment has to be received by the tax office. You cannot negotiate the amount of tax liability with the tax office. The full amount plus deferred interest is due.
  • Tax deferrals are only granted if there are valid reasons.
  • Companies and the self-employed who have been hit by the Corona crisis can easily overturn taxes thanks to special regulations. The deferral interest can be waived.
  • A tax deferral is less of an option for private individuals.

What is a tax deferral?

If you cannot pay your tax debts, you can contact the responsible tax office a deferred payment - apply for a so-called deferral. The deferral is possible for the entire amount or only for part of it. The tax liability will therefore only be due at a later point in time. The tax office basically grants the taxpayer a loan. Therefore, it can also demand deferred interest for the deferred payment. They then add to the tax liability. That means: the longer the payment is postponed, the more expensive it becomes.

A tax deferral is only granted, however, if there is a compelling reason for it: The payment must mean "considerable hardship" for the person concerned. This is regulated by law in Section 222 of the Tax Code (AO). The catch: Such severe hardship is only given when the existence is endangered by the tax payment. Another condition is that there is no way to raise the money for the taxes, for example through a loan.

The tax offices usually look very carefully at applications for tax deferrals. They check whether the applicant has always paid his taxes reliably in the past. But also whether he actually got into a financial emergency through no fault of his own. Anyone applying for a tax deferral should therefore be prepared for the fact that the tax office will ask for evidence.

© istock / Animaflora / 2020 Companies affected by the Corona crisis can defer taxes until the end of 2020.


Who can apply for tax relief due to Corona?

In times of Corona, special, simplified rules apply. That means: tax deferrals should be granted unbureaucratically without the usual strict examination. However, these simplifications only apply to those that are “demonstrably directly and not negligibly” affected by the effects of the Covid-19 pandemic. This is what it says in the federal government's letter to the tax authorities. Whether this is the case is at the discretion of the respective tax office. There are good reasons if ...

  • the company had to close due to the Corona regulations.
  • a self-employed person has Covid-19 and was therefore unable to work.
  • an entrepreneur receives state corona aid.
  • Customers have payment difficulties due to the Corona crisis and therefore do not pay their bills.
  • Orders are withdrawn due to the uncertain economic situation.
  • large parts of the workforce are infected with the corona virus and therefore orders could not be fulfilled.
  • a company has registered short-time work.

If you find yourself in such a situation and can prove this, you can apply for an interest-free tax deferral until December 31, 2020.

When does it make sense to overturn taxes?

A tax deferral can help if the payment difficulties only are a temporary problem and other payments are more important, such as employee wages. Because with a deferral, the following applies: postponed is not canceled. The tax office waives the deferred interest in the case of corona-related payment difficulties, but you will have to pay the deferred taxes in the coming year at the latest. A deferral therefore only makes sense if if you assume that you will collect the outstanding amount by the new payment date

© istock / claffra / 2019 A tax deferral can only help if the end of the ebb can be foreseen in the cash register. Otherwise, it just postpones the problem.


Which taxes can be deferred?

In principle, a taxpayer can all taxes hour, which he pays directly for himself. These are primarily these taxes:

  • value added tax
  • Income tax
  • Corporation tax

On the other hand, taxes that are paid on behalf of a third party are not deferred. This means so-called withholding taxes. One example of this is wage tax. The employer transfers this to the tax office. However, he does not pay the amount out of his own pocket, but deducts the amount from the employee's wages. Therefore, companies are not allowed to defer wage tax payments.

During the corona pandemic, some federal states have temporarily extended deadlines for wage tax registration in order to give crisis-ridden companies a little more breathing space.

Bridging deferral - the short-term alternative

Bridging deferral - the short-term alternative

Sometimes there is a tax liability while the debtor is getting money back from the tax office at the same time. This can be the case, for example, if the self-employed have to pay sales tax but have paid too much income tax. Then they can file the sales tax return along with an application to defer these debts until the income tax repayment is approved. Both are simply offset.

The advantage: Such a bridging deferral (or technical deferral) is interest-free.

How is the tax deferral applied for at the tax office?

If you have problems paying your tax debts, the most important basic rule is: Talk to the tax office immediately and explain your situation. Before the tax payment is due. The officers will then discuss how to proceed with you.

Tax deferrals must usually be applied for in writing. For tax breaks due to the effects of the coronavirus you can download a special application form from the website of the responsible state tax authority. All you have to do here is fill in or tick the relevant fields.

Basically, a deferral application to the tax office should contain the following information:

  • Reasons for the tax deferral
  • Specification of the tax type that is to be deferred
  • Period or due date of the tax payment.
  • Indication of whether you can pay your tax liability in installments. And if so: Please state the installments in which you want to pay off your tax debts.

Here you can download a sample letter as a Word document.

Usually you have to apply for a deferral for each tax claim individually. Just because you have submitted an application once does not automatically apply to taxes determined afterwards. This is easier to do in the application form for Corona tax relief: Here you can apply for deferrals for several types of tax with a single form.

What options do private individuals have with tax debts?

The corona tax relief is primarily intended for the self-employed and entrepreneurs. But In theory, you can also apply for a tax deferral as a private person. For example, if you have to make a large back tax payment that you cannot possibly raise by the deadline set.

The requirements are the same as for companies; § 222 of the Tax Code (AO) also applies to private individuals: You must have good reasons for the tax deferral and you must not have caused your financial distress yourself. This can be the case, for example, if you had to use up money that you had set aside for possible back tax claims because of a serious illness. In addition, the tax deferral is only granted if there is actually no other way to pay the tax debt - for example through a loan. In addition, the tax office may, under certain circumstances, request security in the form of a mortgage.

Normally, taxes are deferred for a maximum of six months. An application for deferral only makes sense if your financial situation is likely to be better in six months. Instead, you can also try to negotiate with the tax office on a suspension of enforcement with payment in installments. You can do this even if your application for deferral has been rejected.

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