Investment & Wealth
Disability Insurance
tax deduction for occupational disability
Deducting occupational disability for tax purposes: How to secure advantages
Income protection insurance is an important form of financial security. However, many people are unaware that the premiums for disability insurance can be tax-deductible and that, under certain conditions, the pension payments are taxed at a low rate. Find out here how to make the most of it.
The topic in brief and concise terms
Contributions to disability insurance can be deducted as other provident expenses up to 1,900 euros (for employees) or 2,800 euros (for self-employed individuals) annually, but are often already fully utilized by health/care insurance contributions.
The occupational disability pension is generally only taxed on the low income portion, the amount of which depends on the age at the start of the pension and the duration. [2,3]
A combination of disability insurance with a Rürup pension can allow for higher contribution deductions, but it leads to higher taxation of the pension later on. [1,4]
Basics: Understanding contributions to occupational disability insurance as precautionary expenses
The contributions to an independent occupational disability insurance (SBU) count as other pension expenses. You can declare these in your income tax return to reduce your taxable income. However, there are annual maximum amounts for other pension expenses. For employees and civil servants, this is €1,900, and for self-employed persons who fully bear their health insurance contributions themselves, it is €2,800. Often, these maximum amounts are already exhausted by the contributions to basic health and nursing care insurance. Nevertheless, it is sensible to declare the occupational disability contributions, as legal frameworks can change. The exact regulations can be found in the Income Tax Act, particularly in § 10 EStG. [1,2] These fundamentals are crucial for understanding further deduction possibilities.
Maximum Deductibility: Limits and Their Utilization in Practice
As mentioned, other precautionary expenses can be claimed for tax purposes up to 1,900 euros (employees) or 2,800 euros (self-employed) per year. This category includes not only occupational disability insurance but also other types of insurance, such as private accident or liability insurance. Contributions to statutory health and long-term care insurance (basic coverage) are given priority and often already fill this maximum amount entirely. An employee with a gross monthly income of around 2,000 euros often exceeds the amount of 1,900 euros with their health and long-term care insurance contributions. [2] The tax impact of BU contributions is then often only theoretical. Therefore, it is important to examine your own situation carefully, as explained in the guide Which insurances are deductible. The next step is the accurate collection of this data.
Correctly declare: Enter disability insurance contributions in the tax return
The contributions for independent occupational disability insurance belong in the 'Vorsorgeaufwand' section of your income tax return. [2,2] For the 2023 tax year, for example, this should be entered in line 45 under "Contributions to voluntary independent occupational disability insurance". [5,2] Other sources mention line 49 for employees. [1] It is important to always check the most recent version of the tax forms or consult a tax advisor. Ensure you state the total annual contribution correctly. [3] You will need certificates from your insurance company about the payments made. Careful documentation and correct entry, as described in 'Where to enter insurance', can secure potential tax advantages for you. But it's not just the contributions, the pension benefits also have tax implications.
In Focus: Taxation of Disability Pension
When the event of a claim occurs and you receive an occupational disability pension, this is also subject to tax. The good news: Private occupational disability pensions are usually taxed only on the so-called earnings portion. [2,1] The amount of this earnings portion depends on how old you are when the pension starts and how long the pension is expected to be paid (remaining term). [3,2] The shorter the remaining benefit period, the lower the taxable earnings portion. [3] For example, the earnings portion for a remaining term of 20 years is 21 percent. [3,2] This low taxation percentage often results in the actual tax burden on the disability pension being low or even non-existent if the total income falls below the basic tax-free allowance. [1,2] You can find more details on the calculation in our disability pension tax calculator. A specific calculation example illustrates this.
Expert knowledge: Tax structuring through Rürup disability insurance and more.
One way to optimise taxes might be to combine occupational disability insurance with a basic pension (Rürup pension), often referred to as BUZ (Berufsunfähigkeitszusatzversicherung). [1,2] Here, the contributions can often be deducted as special expenses to a greater extent, as they are considered retirement provision expenditures. [1] In the year 2023, 100 per cent of the contributions to Rürup contracts are deductible up to a maximum amount of 26,528 euros (for single individuals) or 53,056 euros (for married couples). [1] However, the subsequent pension payments from such contracts are subject to higher downstream taxation. [1,4] From 2040, the pension from Rürup contracts will be taxed at 100 per cent. [4] It requires careful consideration between higher deductible possibilities during the accumulation phase and the later tax burden in the benefit phase, as is also the case with unit-linked pension insurance. Our expert tip summarises the most important considerations.
Our expert tip: Long-term planning and advice are crucial
The tax treatment of your disability insurance is a complex topic with many facets. A general recommendation is hardly possible, as the optimal solution greatly depends on your individual situation (employee, self-employed, amount of contributions, other pension expenses, desired level of coverage). Consider both the deductibility of contributions during the payment phase and the taxation of the pension during the benefit phase. A long-term perspective is essential here. To avoid pitfalls and develop the right strategy for you, professional advice, which is also advisable for occupational pensions, can be very helpful. We at nextsure are happy to support you in analysing your insurance situation and identifying potential for optimisation.
Summary and Call to Action
Contributions to occupational disability insurance can be claimed as other precautionary expenses for tax purposes, with maximum amounts of €1,900 or €2,800, which are often already exhausted by health and long-term care insurance contributions. The BU pension itself is usually taxed only at a low income rate, which often leads to a low or no tax burden. [2,1] Careful examination of your personal situation and correct entry in the tax return are important. We are available for a comprehensive analysis of your insurance coverage and to optimise your contracts. Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific optimisation suggestions.
More useful links
Bundesfinanzministerium offers detailed information on § 10 of the Income Tax Act, which deals with special expenses.
Bundesfinanzministerium provides information on Appendix 22a/I, which is relevant for tax regulations.
Deutsche Rentenversicherung offers a collection of statistics and reports on pension insurance.
Deutsche Rentenversicherung provides specific statistics on disability pensions over time.
Statistisches Bundesamt publishes press releases, including the series "Number of the Week".
Bundesanstalt für Arbeitsschutz und Arbeitsmedizin (BAuA) provides numbers, data, and facts about the costs of work incapacity.
FAQ
Can I always deduct my occupational disability insurance from my taxes?
In principle, yes, the contributions are considered as other pension expenses. However, there are maximum limits (1,900 euros for employees, 2,800 euros for self-employed) which are often already reached by health and nursing care insurance contributions, meaning the disability insurance contributions do not reduce taxes any further.
What is the tax rate on my occupational disability pension?
The private disability pension is only taxed on the earnings share. This share (e.g. 21% for a remaining term of 20 years) is taxed at your personal income tax rate. If the taxable income falls below the basic tax-free allowance, no taxes are due. [3,2]
What is the difference between the deductibility of an independent disability insurance (SBU) and a supplementary disability insurance (BUZ) with Rürup?
Contributions to an independent disability insurance (SBU) are only deductible to a limited extent as other pension expenses. Contributions to a BUZ as part of a Rürup pension can be deducted to a much greater extent as retirement expenses, but the Rürup pension will be taxed at a higher rate later. [1,4]
What documents do I need for the tax return regarding my disability insurance?
You will need the annual certificate from your insurance company showing the paid contributions to the occupational disability insurance. This indicates the amount you can enter in the pension expenses section.
Do I have to pay social security contributions on my disability pension?
Pensions from private occupational disability insurance generally do not incur social security contributions. However, for disability pensions from an occupational pension scheme or certain Rürup constructions, contributions to health and nursing care insurance may be due.
Does the tax treatment of the disability pension change during the payment period?
No, the earnings share once determined for your private disability pension remains the same for the entire duration of the pension receipt. However, your personal tax rate can change if your total income changes. [5]
