German Tax System
What is a tax return (Steuererklärung)?
Your income tax return provides the tax office (Finanzamt) with information about your income and deductible expenses. Through this, they can determine how much tax you owe.
As a taxpayer, it’s possible that you’ve paid too much tax in advance within the calendar year which leads to a tax refund – however, it’s also possible that you paid too little, leading to a tax back pay-ment.
You can claim all of your professional expenses on your tax return and likely receive a tax refund, 1,072 euros on average.
If you’re required to file a tax return (see Mandatory tax assessment) and are at risk of paying a tax back payment, you can reduce the tax due by deducting various expenses – thus making a tax return worth it, no matter what!
Tax ID (Steuer-Identifikationsnummer)
All residents of Germany receive a personal and permanent 11-digit tax ID (Steuer-ID). Citizens receive these numbers upon birth and expats typically receive them upon registering their address (Anmeldung).
Tax number (Steuernummer)
Tax numbers (Steuernummer), which are assigned to you by your local tax office, are currently still in use but are to be fully replaced by tax IDs. The tax office can use tax numbers to quickly identify your income tax return and assign it to you accordingly.
Tax numbers change when one moves residences, newly generated tax numbers are issued by one’s local tax office (Finanzamt). Tax numbers are not to be confused with tax IDs which never change.
What is a tax class in Germany?
Tax classes in Germany, referred to as “Steuerklassen”, determine your income tax rate based on your marital status, your spouse’s income and the number of dependent children. The amount of unemployment benefits, social security and holiday pay depend on the tax class you have been placed in.
Each employee must personally prove and register his/her current situation with the German authorities.
Once the tax authorities have linked your profile to your tax class, this is used to calculate and withhold tax from your monthly salary.
If there is any change in your life, the tax class can be changed. Any incorrect deductions that are charged will be added to your tax return at the end of the fiscal year.
| 6 “Steuerklassen” – tax classes | |
Tax class | Description |
| I | The first class is for workers who are single or for those whose spouses live abroad |
| II | Single and divorced with dependent children |
| III | Married or widowed who are in the first year after the death of a spouse |
| IV | Married, both spouses have income |
| V | Married persons whose spouse has a higher income |
| VI | Employees with multiple jobs and different tax cards (Lohnsteuerkarte) |
NOTE: For tax class III (three) spouses have to be registered and living in Germany. If the spouse does not live in Germany, tax class I (one) applies
Tax card (Bescheinigung für den Lohnsteuerabzug)
1. Tax cards (Lohnsteuerkarte): you apply for them annually at the local registration office (Rathaus or Einwohnermeldeamt)/Finanzamt.
2. Depending on your personal status (marital status, dependent children, etc.), the tax class you have been assigned will be shown on the card. If you do not receive it, you will need to contact your local registration office or request it online.
3. ” Bescheinigung für den Lohnsteuerabzug” lists all the details of your local tax office (Finanzamt). It basically depends on your place of residence and your surname.
4. Income tax for all employees is paid by the employer and passed on to the responsible tax office (Finanzamt).
5. To claim any overpayment, you must file a tax return in the following calendar year. The amount of the overpayment is calculated either by the annual income tax assessment (Lohnsteuer-Jahresausgleich) or by a request for assessment (Antragsveranlagung).
Wage tax (Lohnsteuer) and income tax statements (Lohnsteuerbescheini-gung)
All taxpayers in Germany are required to pay income tax (Einkommensteuer) if their income exceeds the basic tax-free allowance (Grundfreibetrag) of 10,347 euros in 2022 and 10,908 euros in 2023.
Wage tax (Lohnsteuer), an automated method of taxation for the largest employee group, was estab-lished to simplify tax collection. This is an advanced payment on your annual income tax and is de-ducted from your monthly gross wage (for non-independent work). Your wage tax is calculated ac-cording to your personal electronic wage tax deduction details (Lohnsteuerabzugsmerkmale or EL-StaM for short) and transmitted monthly to the tax office (Finanzamt) – details about these deductions can be seen in your monthly pay slip (Gehaltsabrechnung).
At the end of each calendar year – by the end of February of the following year at the latest – your employer submits your annual wage tax statement (Lohnsteuerbescheinigung) to the tax office and provides you with either a printout or electronic copy. This statement is then used for your tax return.
Tax rates in Germany
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German income tax rates 2023
The income tax brackets for 2023 are as follows:
| PROGRESSIVE TAX RATE | TAX BAND FOR SINGLE TAXPAYER | TAX BAND FOR MARRIED TAXPAYER |
| 0% | Up to €10,908 | Up to €21,816 |
| 14% for the minimum amount, rising to 42% as income increases | €10,909 – €62,809 | €21,816 to €125,618 |
| 42% | €62,810 – €277,825 | €125,620 – €555,650 |
| 45% | Over €277,826 | Over €555,650 |
What costs are tax-deductible (steuerlich absetzbar)?
The most common tax-deductible costs belong to income-related expenses (Werbungskosten) which include all expenses that arise from your profession. These include (but aren’t limited to) commuting costs, business trips, further education, costs for work clothes, setting up a home office, professional insurances, and job applications. Income-related expenses are legally defined as “expenses incurred to acquire, secure, and maintain income” (§9 EStG).
A lump sum of 1,000 euros per year is automatically deducted for income-related expenses. As of 2022, this lump sum will be definitively increased to 1,200 euros per year. No evidence is required for this lump sum. If you wish to claim more expenses that exceed this lump sum, you will have to provide proof.
Deductible income-related expenses
• Moving costs
• Double household management (if you have a second residence for professional reasons)
• Telephone and internet costs
• Business trip costs
• Commuting allowance (Entfernungspauschale)
• Job application costs
• Contributions to professional associations (Berufsverbände)
• Costs for a work room in your home (häusliches Arbeitszimmer)
• Work equipment and materials (Arbeitsmittel)
• Costs for further education
• Home Office Lump Sum (Home-Office-Pauschale) from 2020
• etc.
Special expenses, extraordinary expenses, and household-related expenses
Deductible special expenses (Sonderausgaben) include:
• Church tax
• Donations & membership contributions
• Costs for career-related education
• Provisional expenses such as retirement contributions of contributions to health or nursing insurance
• Alimony payments to an ex-spouse
• etc.
Extraordinary expenses (außergewöhnliche Belastungen) include:
• Costs for medicine and therapies
• Expenses for commutes to your doctor
• Nursing care expenses for your parents
• Maintenance payments to dependents
• Expenses related to a disability
• etc.
Household-related expenses (haushaltsnahe Dienstleistungen) include:
• Pet care
• Tradespeople expenses
• Personnel costs for your annual utility bill
• etc.
Other Statutory deductions
There are following statutory deductions which are not actually income tax, but deducted from salary.
- Solidarity surcharge : The Solidarity Tax (also known as Soli) was created in 1991 to aid Germany’s economic reunification. The flat tax rate is 5.5% of the employee’s gross income. As of 1 January 2021, the application of the solidarity surcharge tax has been substantially reduced.
- Church tax : Employees who belong to a church have to pay church tax, which is withheld from their total monthly taxable income. The church tax varies by federal state and is 8% to 9%.
- Employee´s share in health insurance
- Nursing insurance
- Pension insurance
- Unemployment insurance
Following table shows various types of insurance and contributions of employee in % of Gross salary
| TYPE OF INSURANCE | CONTRIBUTION |
| Pension | 9.30% |
| Health* | 7.30% |
| Long-Term Care | 1.70% |
| Unemployment | 1.30% |
To know more about German taxes contact us .
We are available to provide you with further information and consultation. You can contact us on
Email ID: Contact@germantacs.com and Mobile no. : +91 9910517725.