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German Income tax - Tax Classes

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.

Germany has very systematic income tax system

What are the key salient features?

  • Financial year is same as calendar i.e. January to December
  • Tax rate is based on your marital status, spouse, siblings etc. So register your family and check the tax class in the "Bescheinigung für der lohnsteuerabzug".
  • Tax rate is progressive
  • No provision to declare any tax savings to employer
  • Tax paid in excess needs to be claimed back through tax return filing

Tax classes (Steuerklasse)

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.

German Income Tax Classes (Steuerklasse)

Tax Class

Description

 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).

Tax card (Bescheinigung für den Lohnsteuerabzug)

  • Tax cards (Lohnsteuerkarte) are issued by the local registry office (Rathaus or Einwohnermeldeamt) / Finanzamt every year. This card will indicate the appropriate tax class according to the individual's personal status, as detailed above. Generally it is dispatched to your address automatically, but if you don't receive this you will need to contact local registry office or request it online.
  • "Bescheinigung für den Lohnsteuerabzug" has details of your responsible tax office (Finanzamt). This is worked on your city of residence and your name.
  • Wage tax for all employees is deducted by the employer and forwarded to the responsible tax office (Finanzamt).
  • Your tax return needs to be filed in the next calendar year to claim any excess tax. This is assessed either by the annual wage tax settlement (Lohnsteuer-Jahresausgleich), or by assessment application (Antragsveranlagung).

Tax Rates (Lohnsteuer)

A basic personal allowance is deducted from taxable income, it is €8,354 for single persons and €16,708 for married couples.

The minimum tax rate is 14%. To start with, this rate increases progressively up to a rate of 42% for a taxable income of €52,882 / €105,762 (single persons/ married couples). Above this income, there are flat rates.

German Income Tax Tables

Tax %

Tax Base (EUR)(For Class I)

Tax Base (EUR) (For Tax class III)

0

Up to 8354

Up to 16708

14% − 23.97%

8355 -13469

16,709 -26938

 23.97% − 42%

13470 -52881

26939 -105,762

42%

52,882-250,730

105,763 - 501,462

45%

250,731 and over

501,462 and over

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

Additional Statutory deductions

The following are statutory deductions that are not income tax, but deducted from salary.

  • Solidarity surcharge
  • Church tax 
  • Employee´s share in health insurance
  • Nursing insurance scheme
  • Pension insurance fund
  • Unemployment insurance
The following table shows various types of insurance and contributions of employee in % of Gross 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%

Total

19.78%

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