Why pensioners suddenly pay tax after an increase
Many pensioners in Germany pay no income tax for years, until a pension increase pushes them over the line. This is not due to a new rule but to the way pensions are taxed. This article explains why every increase is fully taxable, when tax becomes due and when you have to file a tax return.
The pension allowance stays frozen
Only part of the pension is taxable: the taxable share. It depends on the year your pension started: in 2005 it was 50 percent, in 2020 80 percent, and since 2023 the share rises by only 0.5 percentage points per year. Anyone retiring in 2026 is taxed on 84 percent.
The tax-free part is fixed as a euro amount in the year after your pension starts and then stays the same forever. An example: someone who retired in 2018 and had an annual pension of around €14,360 in 2019 has a pension allowance of 24 percent of that, i.e. around €3,446. These €3,446 remain tax-free no matter how much the pension rises later. Every additional euro from pension increases is therefore fully taxable.
When tax becomes due
Income tax is only due when taxable income exceeds the basic tax-free allowance. In 2026 it is €12,348 for single people and twice that for married couples filing jointly. The following are deducted from the taxable part of the pension:
- the lump sum for income-related expenses on pensions of €102,
- the health and long-term care insurance contributions paid, which count in full as special expenses for pensioners,
- the special expenses lump sum of €36.
With a gross pension of €1,500 before the increase and a 2018 start, taxable income for 2025 is around €12,190, just tax-free. After the 4.24 percent increase it is around €12,530 in 2026. The tax is then about €25 a year. Small, but it is a start: with the expected 2027 increase, taxable income rises to around €13,220 and the tax to around €130 a year.
Tax return: when it becomes mandatory
No wage tax is withheld from pensions. The tax is only assessed with the income tax return. Single people must file if their total income exceeds the basic allowance. Note: total income is calculated before the health and care insurance contributions are deducted. So you may have to file a return but end up paying no tax at all.
The tax office knows anyway: the pension insurance automatically reports every pension. If you overlook the obligation, you will sooner or later receive a letter from the tax office, in the worst case with interest on arrears or a late-filing surcharge.
Other income shifts the threshold
The calculation above only applies if the statutory pension is your only income. Company pensions, rental income, a private pension or a mini-job with individual taxation increase taxable income. The threshold is then crossed sooner, and the pension increase is taxed at your personal marginal rate. In the pension increase calculator you can enter other income per year and immediately see the effect on your net pension.
How to use the calculator for the tax check
1. Enter your monthly gross pension and choose whether it applies before or after the increase.
2. Set the year your pension started. From this, the calculator determines the taxable share and your fixed pension allowance.
3. Add other income, church tax and childlessness if applicable.
4. The tax check shows whether the increase makes you liable to tax in 2026 and whether that would happen with the 2027 forecast.
Conclusion
The pension increase itself is no cause for concern; it almost always brings noticeably more money net. But if you are just below the basic allowance, keep an eye on developments. The tax starts small and grows with every increase. A quick check with your own numbers brings clarity, and the income tax calculator helps with your overall income tax. This article does not replace tax advice; if in doubt, an income tax assistance association or a tax adviser can help.