About German Income Tax system

Whenever someone think about the German Tax system, she will get inputs that tax rate is very high as much as 40%. Actually this is not correct, this perception is due to not understanding of various types of mandatory deductions. Here we are explaining the Income tax and other mandatory deductions from your salary and also what is refundable.
Germany has very systematic income tax system.

As in India, we have TDS system, here also income tax is deducted from your salary directly.

Key salient features

  1. Financial year is same as calendar i.e. January to December
  2. Tax rate is based on your marital status, kids etc. So register you family and check the tax class in the "Bescheinigung für der lohnsteuerabzug".
  3. Tax rate is progressive, not flat like India (details given later)
  4. You get a document (Tax card or Lohnsteuerkarte) from Rathaus about your tax class and your tax office every year. First one you can get while registering at Rathaus.
  5. No provision to declare any tax savings to employer
  6. Tax paid in excess (details in FAQs) needs to be claimed back through tax return filing

Tax classes (Steuerklasse)

Most of Indians falls into Tax class I or III (One or three). If both partners are working then tax class IV.

Tax Class
Description
 I

Those single or separated, but not falling into either categories 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).


NOTE: For tax class III (Three), husband and wife should be registered and Living in Germany. If the spouse is living outside Germany then Tax Class I (One) will be applicable.

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 mentioned above). Generally it is dispatched to your address automatically, but in case you don't receive you need to contact local registry office or request it online.
  • "Bescheinigung für den Lohnsteuerabzug" has details of your responsible tax office (Finanzamt). It basically depends 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).
  • Tax return needs to filed in next calender year to claim any excess tax. This is assessed either by a so called 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 EUR 8,354 for single persons and EUR 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 EUR 52,882 / EUR 105,762 (single persons/ married couples). Above this income, their are flat rates.

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

NOTE: The above table is valid for year 2014. For earlier years, there are little different tax rates.

As you can note above the tax allowance is double for married person. The basic principal is that income is divided half between couple to calculate income tax liability. You may be wondering about the tax range between the income level. This is a different concept than India, it is called progressive tax. See the progressive chart graph here.

Calculate your tax at this link or at website: https://www.bmf-steuerrechner.de

Other Statutory deductions 

There are following statutory deductions which are not actually income tax, but deducted from salary.

  1. Solidarity surcharge
  2. Church tax 
  3. Employee´s share in health insurance
  4. Nursing insurance scheme
  5. Pension insurance fund
  6. Unemployment insurance

Following table shows various types of insurance and contributions of employee in % of Gross salary

Insurance Name
(In German)
Insurance Name
(In English)
Employee Contribution
Employer Contribution
Total Contribution
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%

Get Income Tax rebates (How to save tax?)

  • Business expenses (Werbungskosten)
  • Extraordinary expenses (Außergewöhnliche Belastungen)

The detailed explanation is given in FAQ page.

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Form for claiming deduction for Parents support  43k v. 3 Aug 26, 2011, 11:26 AM Surendra Jain