Definition: Extraordinary Expenses
The term extraordinary expenses is of essential importance in German tax law. It refers to expenses that a taxpayer is inevitably exposed to and which, due to special circumstances, exceed what the vast majority of taxpayers with similar income, assets, and family status would ordinarily face. The legal provisions for this can be found in the Income Tax Act (EStG), in particular § 33 EStG and subsequent regulations.
Legal Basis and Systematics
General Legal Basis
The regulation of extraordinary expenses is primarily based on § 33 EStG. This provision grants taxpayers a tax benefit for special financial burdens that arise inevitably due to legal, factual, or moral grounds and exceed the so-called ordinary level. These rules serve to properly take into account the taxpayer’s ability to pay.
In addition to § 33 EStG, §§ 33a and 33b EStG contain special regulations for certain expenses, for example for alimony payments or expenses related to persons with disabilities.
Requirements for the Recognition of Extraordinary Expenses
Inevitability of Expenses
It is crucial that the expenses arise unavoidably for the taxpayer. The inevitability can be based on legal obligations (e.g., support obligations), factual circumstances (e.g., illness), or moral motives. What matters is that the expenditures are not voluntary and that the taxpayer could not avoid incurring them.Important Examples of Inevitability:
- Medical costs related to illness that are not reimbursed by statutory or private health insurance
- Expenses for caregiving services
- Funeral costs
- Maintenance obligations toward persons legally entitled to support
Extraordinary Nature of the Expense
The burden must exceed what is usual for comparable taxpayers. Typically, this is assessed in comparison to the majority of taxpayers with similar incomes, assets, and family circumstances.
Nature of the Burden
The expenses must represent a financial burden; that is, they must be actual expenditures made from one’s own assets that are not reimbursed by third parties (e.g., insurance companies, government support).
Deduction and Reasonable Burden
Determining the Reasonable Burden
Not all recognized expenses are considered tax-deductible in full. When calculating, a so-called reasonable personal burden is deducted, the amount of which is regulated in § 33 (3) EStG according to total income, marital status, and number of children.
Only the amounts exceeding the reasonable burden are taken into account for tax purposes. The level of the reasonable burden varies between 1% and 7% of the total amount of income.
Systematics of the Deduction
The taxable amount is thus determined by the following formula:Recognized expenses
./. Reimbursements by third parties
= Inevitably incurred expenses
./. Reasonable burden
= Deductible amount
Typical Areas of Application and Individual Rules
Medical Expenses
Medically necessary expenses such as doctor or dentist fees, costs for medications, visual aids, cures, and rehabilitation measures can generally be deducted as extraordinary expenses, provided they are unavoidable and are not reimbursed by third parties.
Nursing and Care Home Costs
Expenses for age-related care and accommodation in a care home are considered extraordinary expenses, provided no assistance for care is received from the social welfare authorities or from long-term care insurance.
Disability Allowance
Under § 33b EStG, instead of the actual expenses for persons with disabilities, a Disability Allowance may be claimed.
Alimony Payments
Certain maintenance payments to persons legally entitled to support but living outside one’s own household can be considered as extraordinary expenses according to § 33a EStG.
Funeral costs
If funeral expenses are not covered by the estate or by claims for reimbursement, they can be recognized as extraordinary expenses.
Distinction from Other Tax-Deductible Expenses
Income-related expenses, special expenses, and business expenses
Extraordinary expenses are always to be distinguished from income-related expenses, special expenses und business expenses Only expenses that do not fall under these other categories can generally be claimed as extraordinary expenses.
Obligations to Provide Proof and Procedures
Required Proof
For tax recognition, there is a general comprehensive obligation to provide proof. Information must be supported by invoices, proof of payment, certificates, or official documents. For medical expenses, a public health officer’s report or a doctor’s certificate may also be required.
Consideration in the Tax Assessment Notice
Recognition takes place during the process of income tax assessment through the relevant entries on the tax return. The tax office reviews whether the requirements are met and to what extent the expenses are deductible.
Legal Development and Current Case Law
The interpretation and application of the regulations concerning extraordinary expenses are subject to extensive and ongoing case law by the tax courts and the Federal Fiscal Court (BFH). Both the notion of inevitability and the boundaries of extraordinariness are continually clarified.
Current topics in case law include:
- Requirements for costly medical treatments (e.g., alternative healing methods)
- Crediting of received insurance benefits
- Assessment of maintenance obligations to close relatives of school age
Summary
Extraordinary expenses represent an important compensatory mechanism in German income tax law, as they take into account the individual ability of taxpayers to pay in special situations. Correct application requires careful examination of the requirements, comprehensive proof, and distinction from other tax benefits. Ongoing case law ensures proper and practically relevant application of the statutory provisions.
Frequently Asked Questions
What types of expenses can legally be claimed as extraordinary expenses?
As a rule, extraordinary expenses are regulated in tax law by § 33 of the Income Tax Act (EStG). These are expenses that arise inevitably for a taxpayer and are substantially higher than for the majority of taxpayers with similar income and assets. This includes, for example, medical expenses (such as co-payments for medication, doctor visits, or dental prostheses), costs for care services, costs for external accommodation for medical reasons, and expenses incurred as a result of an official order to demolish one’s own house, for example, as a result of environmental damage or encumbrances on the land. In contrast, costs that are attributable to general living expenses, such as spending on luxury items or voluntary purchases, are not recognized.
When is there inevitability in the legal sense with regard to extraordinary expenses?
Inevitability is the central requirement for an expense to be considered extraordinary according to § 33 EStG. Inevitability exists if the taxpayer cannot avoid the expense for factual, legal, or moral reasons. This includes, for example, court decisions, official orders (e.g., demolition orders, redevelopment orders), proven illnesses, or medical indications that make expenses unavoidable. Voluntary costs or those that could have been avoided without serious disadvantages are not deductible. The burden of proof for inevitability lies with the taxpayer—corresponding evidence and documentation must be provided.
How is the reasonable personal burden calculated as part of the tax reduction?
The reasonable burden is determined under § 33 (3) EStG based on the total amount of income, the marital status, and the number of the taxpayer’s children. The legislator stipulates graduated percentages for this—depending on personal circumstances, the reasonable personal burden ranges between 1 and 7 percent of the total income. Only when total extraordinary expenses actually incurred exceed this percentage, is the exceeding part tax-deductible. The calculation is progressive: higher-income taxpayers bear a higher reasonable personal burden. The detailed calculation is usually performed automatically by the tax office, based on the information provided by the taxpayer in their tax return.
What supporting documents must be submitted for the recognition of extraordinary expenses?
For extraordinary expenses to be recognized for tax purposes, the tax office requires appropriate proof. This may include original invoices, proof of payment, medical certificates (particularly for medical expenses), care assessments, certificates of the degree of disability, or official decrees. For medical expenses, a prescription from a doctor is often sufficient; for other charges, detailed proof of inevitability and expenditure may be required. The so-called principle of evidentiary documentation applies: the burden of proof lies with the taxpayer seeking to claim the extraordinary expense. It is advisable to keep all documents, as the tax office may check statements on a random basis.
What role do replacement payments (e.g., from insurance) play in determining extraordinary expenses?
If the taxpayer receives replacement payments for an expense—for example, from health or long-term care insurance, from an employer, or from other payers—these are to be offset against the extraordinary expenses. Only expenses that are actually borne by the taxpayer and not reimbursed are deductible as extraordinary expenses. This expressly applies also to payments made after the fact: for example, if an application is approved only after the tax assessment, the assessment can be corrected due to subsequent changes in actual circumstances.
Can extraordinary expenses also be considered in connection with alimony payments to persons in need?
Yes, alimony payments to persons legally entitled to maintenance can be deducted as extraordinary expenses under § 33a EStG. The prerequisite is that the supported person is in need and has no or only low income or assets of their own. However, there are maximum amounts set annually by the legislator. In addition, the personal income and benefits received by the supported person must be taken into account if they exceed certain limits. Here too, the tax office requires comprehensive proof of the neediness and the maintenance obligation.
What tax-specific rules apply to extraordinary expenses for people with disabilities or care needs?
Special rules apply for people with disabilities (§ 33b EStG). Instead of itemizing individual expenses, a flat-rate allowance for persons with disabilities can be claimed, the amount of which depends on the degree of disability. In cases of care dependency, certain allowances and increased lump sums (care allowances) can also be claimed. Care costs that are not covered by a lump sum and are borne personally can be claimed as extraordinary expenses. The prerequisite is always that the expenses are actually borne by the taxpayer and not reimbursed by the care fund or any other party. Here, too, appropriate certificates and evidence are required.
