Günstigerprüfung and the Teileinkünfteverfahren: when your personal rate beats 25 percent, with worked examples for low incomes

What you will learn

• How the Günstigerprüfung works and why requesting it can never cost you money.
• Roughly at which taxable income the personal rate crosses 25 percent under the 2026 tariff.
• Three calculated cases: a student, a part-time worker and a parent on leave.
• When a shareholder with at least 25 percent (or 1 percent plus a role) should opt for the Teileinkünfteverfahren.

Explanation

Günstigerprüfung (literally "more-favourable test", § 32d Abs. 6 EStG) lets you ask the tax office to add all your capital income to your other income and tax it at your personal progressive rate instead of the 25 percent flat rate. The office computes both results and applies the lower one. The request is a single box on the Anlage KAP, it must cover all your capital income of the year, and it is harmless: if the flat rate is cheaper, nothing changes. The flat-rate rules otherwise stay in force: the Sparer-Pauschbetrag still replaces actual expenses, share losses remain restricted to share gains, and foreign withholding tax is credited.

Where the break-even lies. The 2026 tariff (check the current year) starts at a Grundfreibetrag of €12,348, with marginal rates rising from 14 percent. Under the formula in § 32a EStG the marginal rate reaches 25 percent at a taxable income of roughly €20,800 for a single person and about double for a jointly assessed couple. Because capital income is added on top of other income, the test pays off when other income plus capital income stays below roughly that level, and partially above it. Two bonuses: at the personal rate the Soli exemption threshold applies (no Soli in 2026 if the income tax is below €20,350 for singles), and if the total income stays below the Grundfreibetrag the capital-income tax is refunded entirely. Church tax then follows the assessment instead of the reduced 24.45 percent rate.

Typical beneficiaries: students and apprentices with investment income, people in parental leave or part-time work, retirees with small pensions (the retirement case is covered in the course Living Off a Portfolio), and anyone with an unusually low-income year, for example a sabbatical. Note that capital income added through the Günstigerprüfung also counts for income-dependent items such as the Progressionsvorbehalt on parental benefit and for voluntary health-insurance contributions of self-employed people; check these side effects with a Steuerberater.

Teileinkünfteverfahren (partial-income method). Dividends from a corporation in which you hold a substantial stake can, on application, be taxed at the personal rate with only 60 percent of the dividend counted as income (§ 32d Abs. 2 Nr. 3 EStG). The conditions: you hold at least 25 percent of the company, or at least 1 percent and work for it in a role with significant entrepreneurial influence. The difference from the Günstigerprüfung: here 40 percent of the income is exempt, and 60 percent of related expenses, notably interest on a loan taken to buy the stake, become deductible; the Sparer-Pauschbetrag does not apply to this income. The application must be made at the latest with the tax return for the year and binds you for that year and the four following years. Withholding tax the company deducted is credited. This option matters for founders, family-business shareholders and employee-shareholders, not for ETF investors.

Comparison logic. Flat rate: 25 percent of the dividend plus Soli. Teileinkünfteverfahren: personal marginal rate × (60 percent of the dividend − 60 percent of expenses). For a top-rate taxpayer (42 percent) without expenses, 0.6 × 42 = 25.2 percent, almost identical to the flat rate; with financing costs the partial method usually wins; for a 30 percent marginal rate it wins even without expenses (0.6 × 30 = 18 percent).

Worked example

Hypothetical example, 2026 tariff, single persons, no church tax, formulas from § 32a EStG applied and rounded to whole euros as the law requires.

The student gets the full withholding back. The part-time worker's marginal rate is already close to 25 percent; the saving comes mostly from avoiding the Soli. The full-time employee ticks the box without harm, and the tax office keeps the flat rate.

Teileinkünfteverfahren case: a 30 percent shareholder of a GmbH receives a €20,000 dividend and pays 42 percent marginal income tax. Flat rate: €5,000 plus Soli €275 = €5,275. Partial method without expenses: 60 percent × €20,000 = €12,000 × 42 percent = €5,040 plus Soli €277 = €5,317, slightly worse. With €6,000 of annual loan interest for the stake: (€12,000 − 60 percent × €6,000) × 42 percent = €8,400 × 42 percent = €3,528 plus Soli €194 = €3,722, a saving of about €1,553 per year, locked in for five years.

Common mistake

Practice activity

On paper, 2026 tariff: a single apprentice has other taxable income of €11,000 and €2,400 of capital income after the allowance; the bank withheld €633.00. Use the formula for the zone €12,349 to €17,799: y = (income − 12,348) / 10,000; tax = (914.51 × y + 1,400) × y, rounded down. Calculate the tax under the Günstigerprüfung and the refund.

Key takeaways

• The Günstigerprüfung is a free option: tick the box every year; the tax office keeps whichever result is lower.
• In 2026 the personal rate crosses 25 percent at roughly €20,800 of taxable income for a single person; below the Grundfreibetrag the whole withholding is refunded.
• The Teileinkünfteverfahren needs a 25 percent stake (or 1 percent plus a role), taxes 60 percent at the personal rate, allows 60 percent of expenses and binds for five years.
• Without expenses the partial method only beats the flat rate below about a 42 percent marginal rate; with financing costs it usually wins.

Next step

Lesson 7 deals with the foreign withholding tax that reduces your dividends before the German rules even start, and when a reclaim is worth the paperwork.