Tax Exemption Form for Children: How to Ensure Tax-Free Investment Income for Your Children
Tax Exemption Form for Children: How to Ensure Tax-Free Investment Income for Your Children
Children have their own tax exemptions—and this can be a real benefit for families. If you want to ensure that your children’s investment income, such as interest or dividends, is tax-free from an early age, you should be familiar with the tax exemption form. Used correctly, it saves you money and lays the foundation for smart wealth accumulation.
But how exactly does it work? What information is required, and what should parents keep in mind? In this article, you’ll learn how to make the most of the tax exemption form for your child—in a clear, practical way that highlights the financial benefits for your family.
We'll help you find the right investment for your child!
What is a power of attorney—and why is it important for children, too?
A withholding exemption form is an important tool for exempting investment income—such as interest, dividends, or capital gains—from withholding tax, up to a specified annual amount. The government grants every taxpayer this standard deduction for savers, which can be activated through the exemption. This is beneficial not only for your own accounts but also for money you invest on behalf of your child, since even small earnings from a junior account or securities account may be subject to tax.
By submitting an exemption form, this tax deduction is avoided directly at the source. Parents can submit the form to their child’s bank or financial institution so that the earnings remain automatically tax-free up to the tax-exempt limit. This way, more of the savings remain intact—a smart move for long-term wealth accumulation.
The saver's allowance: How much investment income is tax-free?
The tax-free allowance for savers is a key component of smart tax planning when it comes to saving and investing. It determines how much investment income remains tax-free each year before the withholding tax applies.
- Currently, this tax-free allowance is 1,000 euros per person per year—including for children.
- Married couples who file a joint tax return can combine their tax-exemption allowances, allowing them to receive a total of 2,000 euros in tax-free investment income per year. For children, however, the limit remains at 1,000 euros per child—this amount applies regardless of the parents’ tax bracket or family income.
In practical terms, this means that interest, dividends, or capital gains from a junior account or brokerage account remain untaxed up to this limit. Only when the child’s annual investment income exceeds the 1,000-euro threshold does the bank automatically deduct 25 percent withholding tax (plus the solidarity surcharge and, if applicable, church tax).
Parents can make the most of their child’s tax-free savings allowance by submitting a tax exemption form in the child’s name. The allowance can be flexibly distributed across different accounts or banks—the only important thing is that the total amount does not exceed the 1,000-euro limit.
- Tip: Especially if a child has multiple investment accounts at different financial institutions, parents should make sure to allocate the funds correctly so as not to lose out on tax benefits.
If you do not submit an exemption form, the bank may withhold the withholding tax immediately—even if your income is actually below the exemption threshold. While you can claim this money back later through your tax return, it is easier to submit the appropriate exemption form right away and make the best possible use of the exemption threshold.
The tax-free savings allowance helps you optimize your children’s savings from a tax perspective and grow their investment income without deductions—an important foundation for building wealth from an early age.
Make the Most of Your Investment in Your Children: Here’s How I4K Can Help
A well-planned Wealth Building for Children can lay the foundation for a successful financial future. Invest4Kids helps you find the right investments and make the most of the tax-free savings allowance through the tax exemption form. This way, you can let your child’s capital grow tax-free and benefit fully from our expertise. Together, we’ll turn even small amounts into a big head start for your child’s future.
Exemption Request for Children: Who Can File It and What Is Required?
If you’re investing money for your child, you can use an exemption order to ensure that the investment income remains tax-free up to the saver’s allowance. But who is actually eligible to issue an exemption order—and what do you need to keep in mind?
As your child’s legal guardian—typically the mother or father—you are authorized to issue the exemption request on your child’s behalf. Your child is not yet permitted to do so, even if they already have their own junior account or securities account. In this case, you are acting on behalf of your child.
In order for the bank or financial institution to process the tax exemption request correctly, certain details are required. First and foremost, this includes your child’s tax identification number (TIN). Every child is automatically assigned a TIN at birth, and you can usually find it on the parents’ tax assessment notice or request it from the Federal Central Tax Office.
You must also specify the amount of the tax-free allowance—up to 1,000 euros per year. You can distribute this amount across different accounts or banks, as long as the total amount is not exceeded. Make sure to allocate the funds clearly so that the tax-free allowances are applied correctly.
It’s best to review your tax exemption form once a year, especially if your child’s investment income changes or you open a new account. This ensures that you make the most of the tax benefits—and that your child’s savings can grow unhindered.
Practical Implementation: Step-by-Step Guide
Submitting an exemption request for your child is easier than you think. To make sure you don’t miss any important details and everything goes smoothly, here’s a step-by-step guide:
- Have your tax identification number ready Before you begin, make sure you have your child’s tax identification number on hand. This number is required to process the tax exemption request and can be obtained from the Federal Central Tax Office.
- Set the amount of the exemption Decide how much investment income you want to exempt from taxes for your child. The limit is 1,000 euros per person per year. You can also submit multiple individual exemption requests if your child has savings accounts at different banks—the important thing is that the total amount of all exemption requests does not exceed the maximum tax-exempt savings allowance.
- Fill out the bank's form Almost every bank or financial institution provides a form for the tax exemption request—often available online as well. On this form, you enter your child’s tax ID and the amount of the desired exemption. The form is usually clearly laid out and easy to understand.
- Sign the contract Since your child is still a minor, you, as the legal guardian (usually the mother or father), must sign the authorization form. By signing, you confirm that you are submitting the authorization on behalf of your child.
- Submit an exemption request Submit the completed and signed form to the bank or financial institution where the child’s account or brokerage account is held. Many banks now allow you to submit the form online, by mail, or in person at a branch.
- Check and adjust regularly Check once a year to make sure the tax exemption form is still up to date. It’s especially important to update this information if you have multiple accounts or new investments. This ensures that your child’s investment income remains below the tax-free allowance and that no unnecessary withholding tax is incurred.
By following these steps, you can make the most of the tax-free allowance, avoid tax deductions, and help your child build wealth successfully.
We'll help you find the right investment for your child!
- €25,703 more per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video call from the comfort of your own home
- Sit back and watch your child’s wealth grow—our experts will take care of the rest
NV Certificate: When the exemption order is insufficient
Sometimes, the annual tax-free allowance of 1,000 euros may not be sufficient to cover your child’s investment income—for example, if your child has already accumulated a substantial amount of assets or if multiple investments are generating income at the same time. In such cases, it’s worth obtaining an NV certificate to supplement the tax exemption form.
💡 NV stands for “Non-Assessment Certificate.” You can apply for this certificate from the tax office if your child’s income is so low that they do not have to pay any income tax at all. With the NV certificate, all of your child’s investment income is exempt from withholding tax—regardless of the saver’s allowance. The bank takes this into account automatically and does not withhold any taxes.
In order for the NV certificate to be issued, you, as the legal guardian, must submit an application to the tax office. To do so, you will need your child’s tax identification number, as well as information about their income and, if applicable, any additional tax deductions. Generally, an informal statement regarding the amount of your child’s income, which you include with the application, is sufficient.
The NV certificate is valid for three years and must be renewed thereafter. Once issued, you can submit it to the bank or financial institution where your child has an account or brokerage account. This ensures that your child’s investment income remains tax-free even if the tax exemption limit has already been reached.
Tip: Be sure to apply for the NV certificate in a timely manner to avoid unnecessary tax deductions. This way, you and your child can benefit from optimal tax planning while also supporting long-term wealth accumulation.
Avoiding Tax Pitfalls: What Parents Should Keep in Mind
Even though the tax exemption order and the standard savings allowance make it much easier to save for children, small mistakes can quickly lead to tax disadvantages. To make the most of your child’s investment income, you should keep a few important points in mind:
1. Determine the correct amount for the exemption order
Make sure that the total amount of your child’s tax exemption orders does not exceed the annual savings allowance of 1,000 euros. If you set up individual tax exemption orders at multiple banks, you must carefully coordinate the amounts. If you accidentally exceed the allowance, the bank will automatically withhold withholding tax on the excess amount.
2. Enter your tax identification number correctly
Your child's tax identification number is a required field on every tax exemption form. If it is missing or incorrect, the bank cannot apply the tax exemption and will automatically withhold taxes.
3. No retroactive exemption is possible
An exemption request can only be submitted for the current year, not retroactively. If the bank has already paid the withholding tax, you can only claim a refund for the overpaid tax through your child’s income tax return filed with the tax office—which is often more complicated.
4. Carefully review investment income
Even though children usually earn only small amounts of investment income, you should keep a close eye on it. If the income increases due to interest, dividends, or capital gains, it may be a good idea to adjust the tax exemption form or apply for an NV certificate. This ensures that your child’s investment income remains as tax-free as possible at all times.
5. No misuse
An exemption order may only be issued for your child’s securities accounts and bank accounts. You may not use it for your own investment income or that of other family members—doing so would constitute misuse and could result in tax consequences.
By keeping these points in mind, you can optimize your child’s investment income from a tax perspective and avoid tax pitfalls. This way, your child will benefit in the long term from successful wealth accumulation without unnecessary tax deductions
Conclusion: Take Advantage of Tax Benefits for Your Children
A tax exemption order is a simple and effective way to make your child’s investment income tax-free. With the annual savings allowance of 1,000 euros, your child can save interest, dividends, and capital gains without paying withholding tax—and you’ll be helping them build wealth wisely from an early age.
Especially if your child has multiple accounts or investments at different banks, it’s worth carefully coordinating the individual tax exemption forms. This allows you to make the most of the saver’s allowance and avoid unnecessary tax deductions. If the income happens to be higher, an NV certificate is a useful addition.
So be sure to take the time regularly to review your child’s tax exemption orders and investment income. This will ensure that your child benefits from the tax advantages—an important building block for the financial foundation you can start laying today.
Do you have any questions? Just reach out to us! If you’re looking for support, we’d be happy to provide you with personalized advice at Invest4Kids. You’ll also find plenty of other practical guides, tools, and tips on investing for children on our blog.
We'll help you find the right investment for your child!
- €25,703 more per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video call from the comfort of your own home
- Sit back and watch your child’s wealth grow—our experts will take care of the rest
