Are you moving to Germany to kickstart a shiny new job? Congratulations! We’re sure that as you brim over with excitement and devour German city guides, tax must be the last thing on your mind. But, at the risk of sounding like party poopers, taxes are pretty damn important to the German economic system.
Lohnsteuer (income tax) in 2017, accounted for 27.6% of the government's revenue. Only slightly less than the Umsatzsteuer (VAT), according to offenerhaushalt.de. So it isn’t something that German tax authorities take lightly. (Does any tax authority ever take anything lightly?)
But there’s no need to fear. Unlike declining German articles and nouns, German taxes are nothing to be afraid of. Unusually enough for Germany, the tax system for employed people is actually quite straightforward. Don’t believe us? Read on!
Income tax (Lohnsteuer)
Income tax, AKA Lohnsteuer to give it its German gangsta name, is the most important tax for jobholders in Germany. A salaried person in Germany pays income tax on all income for one calendar year. How much income tax do you have to pay this year?
In Germany, everyone’s earnings are subject to a basic tax allowance. However, the general rule of thumb is - the higher your annual taxable income, the higher the rate of taxation. If you are single, you might not want to be for much longer as you will fit into one of these four income tax brackets:
- Up to €9,408 - not taxable
- Between €9,408 - €54,949 - incremental taxes from 14% to 42%
To “living the dream” brackets of:
- Between €54,950 - €260,532 - 42%
- Over €260,533 - 45%
So, for example, a monthly gross salary of €3,000 equals €1,960.29 net. The income tax in this case is 34.66%, according to Steuerklasse or tax bracket 1 (2019).
If you find these tax rates terrifyingly high, here’s a tip - the German state rewards good old traditional matrimony (or a registered civil partnership). In other words, getting hitched in Germany can bring home some major tax savings if one spouse earns significantly less than the other. So, it might be time to start swiping right more often and get this show on the road.
If you’ve been dithering for a while about popping the question to your partner, *hint* *hint*, NOW is the right time. No wonder the Germans have an international reputation for being romantic…
“Schatzi, I am now going to demonstrate the depth of my love for you, not with chocolates or flowers, but by asking you to marry me so that we can save money on taxes, which we can then use to pay for our honeymoon where we will irritate all of the other guests by leaving our towels on the sun-loungers on our way back from Schlager night in Mallorca.” “Ja, Ja, JAAAAAAAA!” Aside from what gets Germans horny, is there anything else you should know?
Well, it’s Germany we’re talking about so there’s always something else you should know. Employed people also pay a bunch of supplementary taxes and social security contributions besides income tax. Let’s take a look at them one by one - preferably read just before bed time.
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Solidarity surcharge (Solidaritätszuschlag)
In Germany, there’s this thing called the “Solidarity Surcharge”. You may hear some of your German colleagues whining about it once in a while, when they’re not complaining about how their six weeks of annual leave is just too short that is.
Since 1991, the solidarity surcharge has been levied on German taxpayers to help fund public investment in former East Germany. According to Bundesregierung.de, the solidarity surcharge will be discontinued entirely as of 2021. Watch this space.
Church tax (Kirchensteuer)
In Germany, members of certain churches and religious organisations have to pay a tax. This is called the church tax. That’s right folks, dropping a few coins in the collection box and proudly polishing your halo just doesn’t cut it here.
The following churches and religious communities collect tax from their members:
- The Jewish Community (Jüdische Gemeinde)
- The Evangelical Church (Evangelische Kirche)
- The Roman Catholic Church (Römisch-Katholische Kirche)
- The Old Catholic Church (Altkatholische Kirche)
- Other Free Religious Communities (Freireligiöse Gemeinden)
The church tax is 8% of your income tax in Bavaria and Baden-Württemberg because they’re already very holy and pay less; if you live anywhere else in Germany, you will pay 9% for the privilege.
Starting to feel sleepy? Hang on, we’re not done yet - there are even more deductions from your salary!
Every employed person in Germany has to pay social security contributions. Let’s dive right in and get an understanding of each of them. (Go put your pajamas on - it’s almost time.)
Do I have to pay church tax?
You heathen. But actually, no, you don’t. Unfortunately, you do have to officially renounce your membership of the church to avoid paying it though. Depending on the state you live in, you may have to go to the registry office (Standesamt) or district court (Amtsgericht) and usually you will have to pay for the pleasure. It’s free in a few states but can cost up to €100 in others. And whatever you do, MAKE SURE you get a written confirmation. The office will inform the Finanzamt but, a few years later, the church might doubt that you left and, if you can’t officially prove it with this piece of paper, you will end up paying back taxes for all of those years. That’s why keeping documents FOREVER is so important in Germany. So, scan it, email it to yourself, photocopy it, file it – just make sure you can produce it again if you’re ever asked. In case you were wondering if your children can still get baptised if you stop funding the holy institution, then we can alleviate your fears.
Pension insurance (RV/ Rentenversicherung)
This is a compulsory deduction for pension funds. However, note that this does not go towards your own individual pension plan. It’s paid by the working population to sustain people who are currently in retirement. And, in Germany, that is a lot of people.
As of 2018, this deduction amounts to 9.3% of your gross monthly salary and both you and your employer contribute this amount. Introduced by Otto von Bismarck in 1889, he probably never expected people to live this long but, as it is, we’re still stuck with it today. Thanks, Otto.
Health insurance (KV/ Krankenversicherung)
This is the obligatory contribution towards German healthcare funds. The current statutory health insurance rate is 14.6% of your gross monthly income.
You and your employer share the health insurance deduction costs equally. This means you pay 7.3% and your employer pays 7.3% of your gross income.
Don’t let it go to waste and get your annual check-ups!
Unemployment insurance (AV/ Arbeitslosenversicherung)
Just when you thought you were done watching your money disappear, there’s more. Unemployment insurance is another mandatory deduction for all employees in Germany. Just like the health insurance contribution, your employer pays half of the unemployment insurance, you pay the other.
This contribution is 3.0% of your gross taxable income, which means you and your employer each pay 1.5% each every month.
(Phew, you’ll sleep well after this...)
When it comes to paying taxes to the tax office, employed people in Germany don’t have to lift a finger! Your employer’s accounting department will automatically deduct the income tax and other deductions from your gross salary (Bruttogehalt) and submit it to the tax office on your behalf. You’ll barely notice that 50% of your salary has vanished!
So, that brings us to the end of our fascinating look at the world of income tax in Germany. What do you think about paying nearly half of your salary in taxes and social security contributions?
How do I calculate my taxes?
Maybe it is out of curiosity. Or you are looking for a new job and want to know what part of your “brutto” (German for gross) salary will end up in your bank. Or perhaps you are planning out your monthly budget for Späti beers, bratwurst, or vegan cupcakes. Take advantage of tax calculators like Brutto-netto-rechner.info or BBX (in English).
If you are in the process of doing your taxes it's often easier to use a tax app than trying to navigate the tax forms yourself. If you do want to get an understanding of the deductions than here is detailed overview of all tax deductions.