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Rürup Pension
taxation of private disability pension table
Taxation of Private Disability Insurance Pension: Tables and Practical Examples for Your Understanding
The taxation of your private occupational disability pension (BU pension) often seems complex. However, with a proper understanding of the proportionate yield regulation and by reviewing the current table, you can save real money. This article explains the details and shows you how it's done.
The topic in brief and concise terms
The taxation of a private disability insurance pension is only applied to the small portion of earnings, which depends on the remaining duration and often falls below the basic allowance.
A specific table in § 55 EStDV lists the exact yield shares for the taxation of the private disability insurance pension.
Disability pensions from Rürup contracts or occupational pension schemes are generally taxed significantly higher in the event of a claim than private disability pensions.
Quick Facts: The Essentials of Disability Pension Taxation
The taxation of private occupational disability pensions (third tier) is based on the yield portion. This portion is often lower than the annual personal allowance of, for example, over eleven thousand euros.
The yield portion is determined by the remaining term of your pension at the start of the pension. A specific table in the Income Tax Implementation Regulation (§ 55 EStDV) lists the exact percentages.
Contributions to private occupational disability insurance can be claimed as other pension expenses. However, the maximum amount is often already exhausted by health and long-term care insurance contributions.
In addition to private occupational disability pensions, there are occupational disability protections through the basic pension (Rürup) or occupational pension schemes. These are subject to different, often higher, tax burdens when benefits are paid out.
Understanding the Earnings Share Table in Detail
The central role in the taxation of your private disability insurance pension is played by the 'Ertragsanteilsregelung' (earnings share regulation). The legislator assumes that your pension payment includes an interest portion, and only this is taxable. The amount of this interest portion is determined by the expected duration of the pension.
The shorter the remaining term of your disability insurance pension, the lower the taxable earnings portion. You can find the exact values in the table of § 55, paragraph two of the Income Tax Implementation Regulation (EStDV). Here is an excerpt:
Remaining term 1 year: zero percent earnings portion
Remaining term 5 years: five percent earnings portion
Remaining term 10 years: twelve percent earnings portion
Remaining term 15 years: sixteen percent earnings portion
Remaining term 20 years: twenty-one percent earnings portion
Remaining term 25 years: twenty-six percent earnings portion
Remaining term 30 years: thirty percent earnings portion
Remaining term 37 years: thirty-six percent earnings portion
This table is the basis for calculating the taxable part of your disability insurance pension. A suitable calculator can provide initial guidance here. The precise application of this table is crucial to your tax burden.
Practical examples: This is how the profit share impacts
Theory is good, practice is better. Let's consider two examples of taxing a private disability insurance pension. Assuming the annual tax-free allowance is eleven thousand six hundred and four euros (as of 2024, subject to change).
Example one: A person becomes unable to work at the age of 47 and receives a monthly disability insurance pension of two thousand euros. The pension runs until the age of 67, so for another twenty years. According to the table, the yield portion for a remaining period of twenty years is twenty-one percent. This means: 2,000 euros x 21% = 420 euros. Annually, that amounts to 5,040 euros (420 euros x 12). This amount is below the tax-free allowance. Therefore, in this case, no income taxes are due on the disability insurance pension, provided there are no other significant incomes.
Example two: A person becomes unable to work at the age of 30, with the pension running until the age of 67 (remaining period of 37 years). The yield portion is thirty-six percent. With a disability insurance pension of 2,500 euros monthly, this is a taxable portion of 900 euros (2,500 euros x 36%). Annually, this results in 10,800 euros (900 euros x 12). This amount is also still below the assumed tax-free allowance of 11,604 euros. The knowledge about the tax liability of the disability insurance pension is crucial here. These examples illustrate how the taxation of private disability insurance pensions works in practice.
Expert Depth: Legal Foundations and Special Cases
The legal basis for the taxation of the private occupational disability pension (tier three) is provided by § 22 number one sentence three letter a double letter bb of the Income Tax Act (EStG) in conjunction with § 55 of the Income Tax Implementation Regulations (EStDV). This section governs the application of the yield share for shortened annuities, which includes the occupational disability pension.
Our expert tip: Pay attention to the so-called performance dynamics. If your occupational disability pension increases annually in the event of a claim to compensate for inflation, this increase is often fully taxable, not just with the yield share.
What happens with additional income? If you have additional income alongside the occupational disability pension, for example, from rental and leasing or a statutory reduced earning capacity pension, these will be combined with the yield share of the occupational disability pension. If the total exceeds the basic allowance, taxes will be incurred. Information on compulsory health insurance is also relevant. Correct reporting in the tax return is essential here.
Comparison: Private BU pension versus Rürup BU and bAV BU
Besides the private disability insurance pension (third pillar), there is the option to combine disability insurance with a Rürup pension (basic pension, first pillar) or an occupational pension scheme (bAV, second pillar). The tax treatment upon receiving benefits differs significantly.
For a disability pension from a Rürup policy, the taxable portion increases annually. For a pension starting in 2023, it would be, for example, eighty-three percent, and by the year 2040 (or later, depending on legislative developments), it will be one hundred percent. However, the contributions are better tax-deductible during the accumulation phase.
A disability pension from the occupational pension scheme is usually fully taxable upon receiving benefits, similar to earned income. However, contributions during the accumulation phase are often exempt from social security and taxes. The private disability insurance pension is usually the most tax-efficient option upon receiving benefits. This also affects whether the private disability insurance pension counts as income with the health insurance.
Use optimisation tips and professional advice
To optimise the taxation of your private disability pension, you should keep a few points in mind. A thorough understanding of the current earnings table and personal allowance is the first step. Check annually if allowances or tax regulations have changed.
Document all relevant documents from your insurance and consult a tax advisor. They can best assess your individual situation and consider all types of income. Early and accurate planning can secure you significant tax advantages.
Our expert tip: When taking out a disability insurance policy, the pension amount should be calculated to cover your needs even after potential deductions for taxes and health insurance. A gross pension that is about twenty percent higher with Rürup or occupational pension scheme combinations may be necessary to achieve the same net amount as with a private disability pension. Find more on the topic of insurance and tax in our blog. The complexity of the subject underscores the value of individual advice.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive concrete optimisation suggestions.
More useful links
The Federal Ministry of Finance offers a document on the taxation of annuities that explains important legal principles.
Another document from the Federal Ministry of Finance highlights the tax incentives for private pension schemes.
Haufe provides an article on pensions from private pension insurance, containing relevant information for taxation.
Also from Haufe is a contribution about pensions from private insurance, offering deeper insights.
Steuertipps.de provides information on the tax exemption of private pensions from tax-privileged old contracts with capital option rights.
The earnings share table is explained in detail on Steuertipps.de, which is relevant for calculating disability pensions.
The German Pension Insurance offers a definition of the earnings share in its glossary.
Steuern.de provides design tips for the R form of the tax return, where pension benefits should be entered.
Lohnsteuer-kompakt.de discusses the tax exemption of pensions from old contracts before 2005 and possible risks.
Wikipedia offers a general overview of the disability insurance.
FAQ
What does earnings portion mean in the taxation of private disability income (BU) pensions?
The earnings portion is the part of your private disability income pension considered as interest income and must therefore be taxed. Its amount is regulated in § 55 EStDV and depends on the expected remaining term of your pension.
How is the private disability income pension reported in the tax return?
The private disability income pension is entered in Annex R of your tax return. Contributions to the disability insurance can be claimed in Annex Vorsorgeaufwand, with maximum amounts to be observed.
What role does the basic tax allowance play in the taxation of disability income pensions?
The basic tax allowance is an annual amount up to which no income tax needs to be paid (e.g., 11,604 euros for single individuals in 2024). If the taxable earnings portion of your disability income pension (possibly plus additional income) is below this allowance, your pension payments effectively remain tax-free.
Are increases in my disability income pension (performance dynamics) also only taxable with the earnings portion?
No, increases from agreed performance dynamics in the event of a claim are generally fully taxable and not just with the original earnings portion.
Are there differences in taxation between private disability income pensions and those from company pensions or Rürup pensions?
Yes, significant ones. Private disability income pensions are only taxed with the small earnings portion. Disability income pensions from company pensions are generally fully taxable, and with Rürup pensions, the taxable portion increases to full taxation.
Where is the earnings portion table for private disability income pensions legally anchored?
The relevant table for the earnings portion of temporarily limited annuities, such as private disability income pensions, can be found in § 55 paragraph 2 of the Einkommensteuer-Durchführungsverordnung (EStDV).
