When people think about the German tax system, they often believe that the tax rate is as high as 40%. However, this is not entirely accurate. This perception usually comes from a lack of understanding of the different types of mandatory deductions. Here, we explain the income tax and other mandatory deductions from your salary, along with details on what can be refundable.
Germany has a very systematic income tax system. Similar to the TDS system in India, income tax is directly deducted from your salary here as well.
Key Salient Features
Financial Year: The financial year in Germany is the same as the calendar year, i.e., January to December.
Tax Rate Determinants: The tax rate depends on factors like marital status and number of children. Make sure to register your family and verify your tax class in the “Bescheinigung für den Lohnsteuerabzug.”
Progressive Tax Rate: The tax rate in Germany is progressive, not a flat rate like in India (detailed explanation provided later).
Tax Card (Lohnsteuerkarte): You receive a document called a Tax Card or Lohnsteuerkarte from the Rathaus each year, which details your tax class and designated tax office. The first one is issued when you register at the Rathaus.
Tax Refunds: Any excess tax paid (refer to FAQs for details) can be claimed back by filing a tax return.
Tax classes (Steuerklasse)
Most of Indians falls into Tax class I or III (One or three). If both partners are working then tax class IV and IV or III and V.
| Tax Class | |
|---|---|
| I | Those single or separated, but not falling into either categories II or III. |
| II | Single and separated, with a child, entitling them to a child's allowance. |
| III | “Married”, or “widowed employees who are within the first year of a spouse's death” |
| IV | Married employees both of whom receive income |
| V | Married persons who would normally fall into category IV, but whose spouse is in tax class III. |
| VI | Employees who receive income from other employment on other, or several different tax cards (Lohnsteuerkarte). |
NOTE: For tax class III (Three), husband and wife should be registered and living in Germany. If the spouse is living outside Germany then Tax Class I (One) will be applicable.
Tax card (Bescheinigung für den Lohnsteuerabzug)
Tax cards (Lohnsteuerkarte) are issued by the local registry office (Rathaus or Einwohnermeldeamt) or the Finanzamt every year. This card indicates the appropriate tax class based on the individual’s personal status (as mentioned above). It is usually dispatched to your address automatically, but if you do not receive it, you should contact your local registry office or request it online.
The “Bescheinigung für den Lohnsteuerabzug” provides details of your responsible tax office (Finanzamt), which is determined by your city of residence and surname (family name).
For all employees, wage tax is deducted directly by the employer and forwarded to the relevant tax office (Finanzamt).
A tax return must be filed in the following calendar year to claim any excess tax paid. The employer provides an annual Lohnsteuerbescheinigung (German Wage Tax Certificate) detailing your income. The Einkommensteuererklärung (German income tax return declaration) is used to apply for a tax refund.
Tax Identification number misplaced, lost or forgotten?
You can obtain a renewed notification of your Tax ID number using the following link: Request Tax ID. The ID number will be sent to your registered address in Germany by postal mail.
For data protection reasons, notification of the Tax ID number via email or phone is not possible.
Tax Rates (Lohnsteuer)
A basic personal allowance is deducted from taxable income, which amounts to EUR 9,984 for single individuals and EUR 19,968 for married couples.
The minimum tax rate is 14% and increases progressively up to 42% for a taxable income of EUR 58,597 (single individuals) and EUR 117,194 (married couples). For incomes above these amounts, flat rates apply.
| Year | Tax % | Tax Base (EUR)(For Class I) | Tax Base (EUR) (For Tax class III) |
|---|---|---|---|
| 2023 | 0 | Up to 9,984 | Up to 19,968 |
| 14% − 23.97% | 9,985 - 57,918 | 19,969 - 115,836 | |
| 23.97% − 42% | 57,919 - 274,612 | 115,837 - 549,226 | |
| 42% | 57,919 - 265,326 | 111,921 - 530,652 | |
| 45% | 274,613 and above | 549,226 and above | |
| 2024 | 0% | Up to 10,908 | Up to 21,816 |
| 14% − 23.97% | 10,909 – 61,972 | 21,817 – 123,944 | |
| 23.97% − 42% | 61,973 – 277,825 | 123,945 – 555,650 | |
| 42% | 61,973 – 277,825 | 123,945 – 555,650 | |
| 45% | 277,826 and above | 555,651 and above |
NOTE: The above table is valid for the year 2023 & 2024. For earlier years, the tax rates may vary slightly.
As mentioned above, the tax allowance is doubled for married individuals. The basic principle is that the income is split equally between the couple to calculate the income tax liability. You might notice varying tax ranges between different income levels—this concept is known as progressive taxation, which differs from the flat-rate system in India. See the progressive chart graph here for a better understanding.
To calculate your tax, use this link or visit the website: https://www.bmf-steuerrechner.de.
Other Statutory deductions
There are several statutory deductions that are not part of income tax but are deducted directly from your salary:
Solidarity Surcharge: This surcharge was originally applied to all taxpayers to support the development of former East Germany after reunification. However, since 2023, only taxpayers with an income higher than €97,000 (single individuals) are subject to it. The surcharge is 5.5% of your income tax.
Church Tax: Applicable if you are registered as a church member.
Employee’s Share in Health Insurance: Contribution towards health coverage.
Nursing Insurance Scheme: For long-term care insurance.
Pension Insurance Fund: Ensures retirement benefits.
Unemployment Insurance: Provides financial support in case of job loss.
Following table shows various types of insurance and contributions of employee in % of Gross salary
| Insurance Name (In German) | Insurance Name (In English) | Employee Contribution | Employer Contribution | Total Contribution |
|---|---|---|---|---|
| Rentenversicherung (refundable) | Pension insurance | 9.95% | 9.95% | 19.90% |
| Arbeitslosenversicherung (Non-refundable) | Unemployment insurance | 1.40% | 1.40% | 2.80% |
| Krankenversicherung (Non-refundable) | Health insurance | 7.45% | 6.55% | 14% |
| Pflegeversicherung (Non-refundable) | Nursing care insurance | 0.975% | 0.975% | 1.95% |
| Total | 19.78% |
Get Income Tax rebates (How to save tax?)
Business expenses (Werbungskosten)
Extraordinary expenses (Außergewöhnliche Belastungen)