Income Taxes in Germany — Understanding How the Tax System Works
Germany's income tax system is managed by the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) and hundreds of smaller regional tax offices (Finanzämter). Major tax expenses include Income Tax, Solidarity Tax, and Social Insurances.
Germany uses a progressive tax rate, which means your rate will increase as your income increases. This ranges from 0% for the lowest incomes to 45% for the highest. Find out more information on how the tax system works in Germany.
German Income Tax
Everyone who generates an income in Germany must pay taxes. Depending on your residency status, you either owe taxes on worldwide or just country-specific income. Germany's progressive tax rate ranges from 0% for incomes below €10,347 up to 45% for the highest salaries.
Tax Residents have lived in Germany for at least six months in a given tax year or own a permanent residence in Germany. As a tax resident, you're taxed on your worldwide income.
Tax Non-Residents have lived in Germany for fewer than six months and do not have a permanent residence in the country. As a non-resident, you're taxed only on income generated within Germany.
| Taxable Income | Rate Applied |
|---|---|
| €0 to €10,347 | 0% |
| €10,348 to €58,596 | 14% to 42% |
| €58,597 to €277,825 | 42% |
| €277,826 or more | 45% |
Solidarity Surcharge
The Solidarity Surcharge, or Soli, as it is called informally, goes toward improving infrastructure and the economic situation nationwide. As of 2021, the Solidarity Surcharge is no longer applied to individuals whose income tax burden is less than €16,956 (or €33,912 for married couples). However, if you do fall in that income range, then you have to pay the surcharge which starts at 11.9% and then gets capped at 5.5%.
Pension Insurance
Pension insurance contributions must be made as well. This ensures you'll be able to afford skiing expenses once you're no longer working :-). The total contribution rate is 18.6%, but it's split with your employer, so you only pay 9.3%.
Unemployment Insurance
You should also expect mandatory contributions to unemployment insurance. This ensures that people who are unemployed are taken care of while they're in-training or job-seeking. All-in-all, the contribution rate is 2.4%, but it's shared with your employer. That means you only pay 1.2% — and your employer pays the other half.
Health Insurance
German taxpayers also need to think about health insurance contributions. All-in-all, the health insurance contribution rate is 14.6%, but like other Social Insurance contributions, it's shared between your employer and you. Your employer pays half (7.3%), and you pay the other half. Depending on your health insurance, there is an additional contribution which averages 1.3%.
Long-Term Care Insurance
Long-term care insurance contributions ensure that everyone can receive long-term nursing care if they need to. This makes it easier to afford care if you have an accident, are diagnosed with an illness, or just reach old age and need help. The long-term care insurance is a mandatory contribution ranging between 3.05% and 3.4%, with the employer paying 1.025% or 1.525% depending on the state.
