If you’ve just moved to Germany, you’ll not only want to know your gross salary, but how also much you’ll get to take home as your net monthly or annual pay. This part is essential to help you decide whether it’s a good enough salary for you to live comfortably.
This isn’t as simple to work out as you think.
First, you’ll need to understand some of the intricacies of Germany’s tax system, as well as the puzzling array of health insurance options which can impact this too.
Don’t worry, we’ve got you covered in this article.
Understanding German Tax rates in 2021
The German tax system uses a number of factors to decide how much to tax your earnings. These include tax rates based on your income, and tax classes based on your personal circumstances.
There are also adjustments based on other taxes you might pay – such as church tax.
We’ll give you a general overview of income tax in Germany, explain German tax rates, help you understand which tax class applies to you, and cover some of the other factors which may impact your take-home salary.
We’ll also share some online tools for calculating your net vs. gross.
A few things to note before we get started:
This guide is for people who are employees in a regular job.
Self employment works differently, and is beyond the scope of this particular article.
Note that we are not tax professionals. If you’ve got any specific queries or would like more in depth information, speak to a tax specialist.
With all that covered, let’s dive in…
How does taxation in Germany work?
The German tax year runs from January to December.
How much tax you’ll need to pay depends on which tax rate applies to you, and which tax class you fall into.
Germany has a residence-based tax system, meaning your global income is taxed in Germany if you spend most of the year there.
What are the German income tax rates?
Germany operates a progressive tax system.
Everyone has a basic amount of untaxed earnings: The first €9,744 you earn each year is tax-free.
From that point, rates increase incrementally – starting at 14% if you earn over €9,744 and then gradually going up to 42% for earnings over €57,919.
There is also a top tax rate of 45% for very high earners.
However, this only applies if you’re lucky enough to earn over €274,613!
2021 German Tax rates at a glance:
|Income from €0 to €9,744||0%|
|Income from €9,744 to €57,918||starts at a marginal rate of 14% and progressively increases to 42%|
|Income from €57,919 to €274,613||marginal 42%|
|Income over €274,613||marginal 45%|
What are the six different German tax classes?
The next thing you’ll need to understand is which of Germany’s six tax classes you fall into. This impacts some of the tax deductibles and sweeteners that the German tax code offers to certain individuals and married couples.
Class I applies to single (unmarried) people. It also applies to you if:
– you’re living in a registered civil partnership
– you’re divorced or widowed
– you’re married, and you don’t fall into classes II, III or IV.
Class II applies to single parents who live alone with a child (or children) and are entitled to government assistance such as the child allowance, or Kindergeld.
Class III applies to people who are married, but are not the main wage earner of their household.
If you’re a stay-at-home parent, or only work part-time while your spouse works full time, this will apply to you.
Class III can also apply to widows for the tax year following their spouses death, but the requirements here are too complex to cover in full here.
Class IV is for married workers who live together and don’t fit into classes III or V. In other words, if you’re married and you and your partner both bring home a roughly equal income, this is for you.
NOTE: If your spouse has not joined you in Germany, then for the purpose of the German tax system you will be classed as single and placed in Class I.
Class V is for the main wage earner in a married couple. It’s essentially the other side of the coin to Class III: If your spouse falls under Class III (ie. is not the main wage earner) then Class V is for you.
This optional class is for individuals who may have more than one job, or who earn money from multiple sources. If you have more than one Lohnsteuerkarte (tax card), then this class applies to you.
Of course there are many grey areas, exceptions and permutations at play here, and you may not fall neatly into one of these classes.
It’s well worth checking with a professional tax adviser to be absolutely sure.
Confused? Try this German Tax Calculator
To understand exactly where you sit in regard to German taxes, you’ll need to know:
- Your tax class
- Your tax rate
- And take into account various conditional deductions and insurances.
If you’re feeling confused, we can’t blame you.
But help is at hand!
Thankfully there are some great tools and resources out there to assist you.
This German Tax Calculator should help you to figure out your gross vs. net.
And we’ve put together a YouTube video walking you through exactly how to use it.
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