When working through the German tax system you may see computations that would indicate that the tax rate is very high, as much as 40%. Actually this is not always correct and this perception can be due to a misunderstanding of the various types of mandatory deductions. Below explains the Income tax and other mandatory deductions from your salary and also what is refundable.
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Germany has very systematic income tax system
Most non-residents fall into either Tax class I or III (One or three). If both partners are working then tax class IV will apply.
|I||Those single or separated, but not falling into either category 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).|
A basic personal allowance is deducted from taxable income, it is € for single persons.
The minimum tax rate is 14%. To start with, this rate increases progressively up to a rate of 42% for a taxable income of 277.825,00 €. Above this income, there are flat rates.
|Tax %||Tax Base in Euros|
|0||Up to 10908|
|45%||277825 and over|
Note 1 on 2023 German Income Tax Tables: Geometrically progressive rates start at 14% and rise to 42%.
As you can see above the tax allowance is double for a married person. The basic principal is that income is divided between couples to calculate income tax liability. The tax range between the income levels is called progressive tax.
Calculate your tax using the German Income Tax Calculator
The following are statutory deductions that are not income tax, but deducted from salary.
|Insurance Name(In German)||Insurance Name(In English)||Employee Cont.||Employer Cont.||Total Cont.|
|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%|