How to make prepayments for income tax as a Self-Employed?

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Every taxpayer in Germany is expected to pay Income Tax with regular installments along the course of the fiscal year.

As an employee, your employer would do it automatically on your Monthly payslip.

As a self-employed individual, you are responsible for declaring and paying Income Tax yourself. One way to do this is through a process called "prepayments." In this article, we will explain how prepayments work and how you can calculate and pay them.

What are prepayments?

Prepayments are advance payments of your Income Tax that you make throughout the year. They are based on your estimated tax liability for the current year. Prepayments are required if you expect your tax liability to be more than €1,000 in a year.

How do I know the expected amounts for my prepayments?

You should receive a letter from your local Finanzamt office, showing the expected amounts to be paid with the expected schedule. This letter is called advance payment notice (vorauszahlungsbescheid über einkommensteuer und solidaritätszuschlag).

The amount is fixed by the means of a tax assessment (§ 155 AO), based on your income from the previous year. If it's your first year as a Self-Employed, your estimated yearly income from your registration form will be used as reference.

If you haven't received the payment notice letter, reach out to your local Finanzamt office to inquire about what you should do.

How do I pay my prepayments?

Once you know your prepayment amount, add it in the app. Follow the steps below.

Step 1	From the mobile app, find the next income tax prepayment tax item.
Step 2	Click the cogwheel on top right of the screen to adjust the amount.
Step 3	Manually input the number. This amount will be carried forward for the next quarters.

Once the amount is setup in the app, you can pay it through one of the following methods:

• Direct debit: If you choose this option, the tax authorities will automatically debit the prepayment amount from your bank account on the specified payment date. You will need to use the SEPA direct debit form provided by the Finanzamt to allow this process.

• Bank transfer: You can also make your prepayments by transferring the payment amount directly from your bank app. To do this, follow the instructions from the tax item in Accountable: the app tells you the IBAN number and necessary payment information.

Prepayments are to be made on the expected income tax liability quarterly, namely on March 10, June 10, September 10 and December 10 (§ 37 EStG).

The app will show your timely reminders. Be sure to look at your taxes screen to follow the tax items.

Can I adjust my prepayments?

Yes, you can adjust your prepayments if your estimated tax liability changes during the year. For example, if you have a significant increase in income, you may need to increase your prepayments to ensure that you have paid enough tax for the year.

If you believe that your income will significantly change from the previous year, you can apply for an update in the advance payments. A reduction is also possible in the current tax year.

Fill in the dedicated form on ELSTER to adjust your prepayments (Anpassung der Vorauszahlung) -> you will then receive a letter with the updated payment schedule.

If you don't have an ELSTER account, reach out to your local Finanzamt office to let them know about any changes and to ask for an adjustment.

Author - Valesca Wilms

As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.

Who is Valesca ?