German income tax is not THE topic that will spark excitement in your life in this country. Look elsewhere for that. However, understanding the difference between this system and the one you know at home is a necessary step.
At the end of this guide, you will be able to understand the basic factors impacting income tax in Germany, how to lower your taxable income & what it means for you as a foreigner.
Who is liable for German income tax
German income tax is known as “Einkommensteuer“. Anybody living in Germany has to pay income tax here. German residents have to declare their income, regardless of its geographical origin. It doesn’t matter if you are a German national or a foreigner. Whether you are an employee or self-employed also doesn’t play a role.
As a reminder, you are considered a German resident if you spend more than 183 days in the country during any given year. If you aren’t a German resident, you can still be liable for German income tax in some cases. Refer to this section for more details.
Income tax is levied thanks to your German tax ID, which is a unique identifier used by the local tax office (Finanzamt) & your employer.
Which types of income are taxed
The following types of income are liable:
- Income related to self-employment – (Private Einkommensteuer)
- Income related to employment – (Lohnsteuer)
- Income related to pension – (Private Einkommensteuer)
- Income related to businesses – (Gewerbesteuer)
- Income related to agriculture & forestry – (Gewerbesteuer)
- Income related to capital – (Kapitalertragsteuer)
- Income related to property – (Grundsteuer)
- Other types such as leasing, renting, inheritance or alimony.
The following types of income are not liable, but they may be used to determine your total taxable income:
- Unemployment benefits – (ALG 1)
- Social benefits – (ALG 2)
- Parental benefits – (Elterngeld)
- Child benefits – (Kindergeld)
- Lottery winnings
Income tax rates in Germany
German income tax follows a progressive system. This means that each “slice” of your income is taxed a different rate. Your tax burden increase with each bracket you reach, with each bracket applying a different rate. This is what it looks like if you are single:
|Income tax bracket – € (2023 – single person)||Tax rate|
|Up to 10 908 €||0%|
|10 909 – 62 809 €||14 to 42%|
|62 810 – 277 825 €||42%|
|277 826 & above||45%|
This is how married couples & registered partners are taxed in Germany, if they do a joint tax declaration.
|Income tax bracket – € (2023 – married couple)||Tax rate|
|Up to 21 816 €||0%|
|21 817€ – 123 944 €||14 – 42%|
|123 945 – 555 650 €||42%|
|Ab 555 650 €||45%|
Please note: those tables are a simplification because there are many sub-brackets. Full table available here.
Employees can calculate their net versus gross salary thanks to this net salary calculator for Germany.
Solidarity & church tax surcharges
To paint a more complete picture, it’s important to look a 2 other factors that can impact your tax burden:
- Solidarity tax (Solidaritätzuschlag): this surcharge was initially applicable to all tax payers as way to finance former East Germany after reunification. Since 2021 however, only tax payers with income higher than 96 409€ (single person) are subject to it. Account for an additional 5.5% of your income tax.
- Church tax (Kirchensteuer): Germany is financing several mainstream churches directly through this surcharge. This is applied to the tax payer if they are part of one of them. Account for an additional 8-9% of your income tax. You can find a guide on how to stop paying Church tax here.
Please note that those surcharges are not calculated off of your total taxable income, but only off of your taxes to be paid.
When is German income tax due
As a private person, income tax in Germany is levied at different times:
- For employees: Wage tax (as well as solidarity & church tax) is levied directly by your employer on your paycheck at the source. Factors impacting that taxation are factored in: family status & tax classes for example. This means that your net salary is also your net income after taxes. All taxes on other income sources you might also have (rental income, capital gains, etc) are to be declared in your yearly tax return. They are then due on the year following by July, 31st. (eg: tax on income from 2022, to be paid in 2023), or later with a tax consultant.
- For self-employed: if you are a newly established freelancer in Germany, income tax is usually due the year after your first year of activity, based on tax assessment for that year. In the years after that, the Finanzamt will use that data to set quarterly prepayments. This is adjusted every year based on your financial results. As for employees: any tax due on other income sources are to be declared in yearly. They are then due on the year following by July, 31st (eg: tax on income from 2022, to be paid in 2023), or later with a tax consultant.
Taxation for foreigners
German income tax for non-residents
There are cases in which non-residents also need to pay income tax in Germany, albeit in a limited capacity on this particular type of income:
- Non-residents owning real estate in Germany: they have to pay property tax (Grundsteuer) on the rental income they get from their local investments. There is an obligation to submit a tax return every year. The local tax authorities (Finanzamt) might decide on prepayments throughout the year in form of quarterly installments.
- Public servants sent abroad: if you are on the payroll of a public entity while working abroad, your income is to be taxed in Germany.
- Non-resident employees of a German company: they have to pay tax on so called extraordinary income (außerordentliche Einkünfte as defined by § 2 Paragraph 1 of EStG). This is things like stock-options, severance packages, capital gains & bonuses. There is an obligation to submit a tax return too.
Avoiding double taxation
Numerous bilateral treaties exist between Germany and countries around the globe to ensure a fair taxation for citizens working across borders. Those treaties plan for relief mechanisms to avoid both countries apply income tax twice.
You can read how to use double-taxation avoidance agreements in this post.
How to lower your taxable income
There are few things you can do to pay less taxes:
- Get married: The German tax code is generous with families. It plans a tax relief system that’s particularly interesting if either one of you earns more than the other. This is controlled by your tax classes (Steuerklasse). How to make use of tax classes is explained here. You can potentially save thousands of euros that way.
- Have kids: Parents can benefits from tax relief when they have children. This is called a child allowance (Kinderfreibetrag), which is connected with child benefits (Kindergeld) in the overall calculation. In 2023, that amounts to 3012€ per parent, as defined by Einkommensteuergesetz (EStG) § 32. A lot of expenses related to your kids can be put off in taxes too (such as expenses for school or day care).
- Make use of tax-deductible expenses: there are plenty of expenses that can be put off in taxes. You can find a list of deductibles for Germany this way.
- Do a tax return every year: even if it’s not compulsory to make a tax declaration (Steuererklärung) every year for a lot of people, it’s often well worth because of how much taxes you can get back. Here is a guide on how to do a tax return in Germany.
German income tax – FAQ
Germany’s tax burden is one of the highest in the world which has led to a strong welfare system and a large budge surplus. This is surely motivated by the golden rule of politics in Germany: no policy should be left financed.
Total income tax is calculated based on your income as an employee or as a self-employed, with factors related to your marital status & your parental situation if applicable. On top of that, a supplementary church tax and solidarity tax may be applied. Finally, other types of income church as capital gains, rental income & more are taken into account as well.
In some cases yes. Typically, non-residents who own real estate in Germany must pay local property tax by submitting a compulsory tax return. If a non-resident is employed by a German company, extraordinary income such as bonuses or severance packages may be taxed in Germany too.
I hope this overview was a helpful introduction on the topic. Feel to ask questions in the comments.Bastien
Thank you so much for all the info, super useful!
A question related to self-employment registration and taxes: Do I have to register as a freelancer while I am making less than the stated 10 908 €/year minimum threshold? Or how does this work?