Income tax in Germany for employees

Income tax in Germany for employees

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If you're working in Germany, here's a guide to personal tax liabilities for workers in Germany.

What you may be liable to pay

All German residents are liable to income tax on their worldwide income and assets. Non-residents are subject to German income tax in respect of German-source income. Unlike some other countries, Germany does not have a special tax regime for incoming expats. You may also be liable for taxes in your home country.

The annual tax return and assessment

All persons subject to German income tax must file an income tax return annually with the appropriate local tax office (depending on the place of residence).

You must file a German income tax return with the local tax authorities after the end of the tax year – in Germany, the tax year is the calendar year. The normal deadline is 31 May, which is automatically extended to 31 December if the tax return is prepared by a tax professional. After filing, the tax return is reviewed by the tax authorities. This might take three to six months. Once the review is finalised, an assessment notice is sent out.

Employees who are subject to the wage tax withholding system are not required to file an annual income tax return, unless they have income from more than one employment or from sources other than employment amounting to more than EUR 410.

Individual income tax rates 2013*

The first EUR 8,130 (married tax table: EUR 8,260) earned each year is tax-free. Any higher amount is subject to income tax.

Income tax is progressive, starting at 18.9 percent and rising incrementally to 42 percent, or for very high incomes, 45 percent. The top tax rate of 42 percent applies to taxable income above EUR 52,882 (married tax table: EUR 105,763). For taxable income above EUR 250,731 (married tax table: EUR 501,462), 45 percent tax is applicable.

In addition to income tax, everyone has to pay solidarity tax, which is capped at 5.5 percent of your income tax.

Finally, if you are a member of a church registered in Germany, you will also have to pay a church tax of 8 or 9 percent of your income (depending on which federal state you live in).

Married couples can apply to file a joint tax return and might benefit from the married tax table.

So what is taxable income in Germany?

Any income from the following categories counts as taxable income:

  • income from agriculture and forestry;
  • Income from a trade or business;
  • income from independent personal services;
  • income from employment, including compensation from past employment;
  • income from capital investment;
  • rental income from immovable property and certain tangible movable property;
  • income from royalties; and
  • other income (gains from private transactions, alimony, annuities, etc.).


In general, all income except interests, dividends and capital gains on stocks is taxed at the tax rates mentioned above.

Interests, dividends and capital gains on stocks are subject to a flat tax of 25 percent plus 5.5 percent thereon, giving a total tax liability of 26.38 percent.

Some types of income are tax exempt but are used to determine the tax rate, like unemployment benefits, maternity leave payments and certain income that has been taxed in another country due to a double tax treaty.

Individual income tax for employees in Germany

Social Security contributions in Gemany

Types of German social insurance

The compulsory social insurance scheme includes the following:

  • Pension insurance (Rentenversicherung).
  • Unemployment insurance (Arbeitslosenversicherung).
  • Health insurance (Krankenversicherung).
  • Nursing insurance for disability and old age (Pflegeversicherung).


Employees are subject to the compulsory social security system. The employer withholds the employee's share from wage and salary payments. Social security contributions are generally paid 50 percent by the employer and 50 percent by the employee.

The employer must withhold the employee's part from the salary and transfer it together with the employer's part to the health care institution, which then distributes the relevant amounts to the other social security institutions. The contributions depend on the employee's salary up to certain maximum levels. The limitations are lower in the five new federal states (the former German Democratic Republic) in order to take into account the lower level of salaries.

For 2013, the rates (including both the employee's and the employer's parts) are seen below:

Social security contributions Rates for 2013 – (Former
West Germany) 

 

Rates

Wage ceiling

Maximum contribution to be paid

 

 

 

by employer

by employee

 

(%)

(EUR per month)

(EUR)

(EUR)

 Pension

18.9

5,800

548

548

 Unemployment

3.0

5,800

87

87

 Health

15.5

3,937.5

287

323

 Disability and old age

2.05

3,937.5

40

40

 

Social security contributions Rates for 2013 – (Former East Germany) 

 

Rates

Wage ceiling

Maximum contribution to be paid

 

 

 

by employer

by employee

 

(%)

(EUR per month)

(EUR)

(EUR)

 Pension

18.9

4,900

463

463

 Unemployment

3.0

4,900

74

74

 Health

15.5

3,937.5

287

323

 Disability and old age

2.05

3,937.5

40

40


Seconded employees

Germany's social security system applies to all employees who work in and are paid in Germany. It also applies to employees working abroad if their employer seconds them for a limited period of time.

Employees who are seconded to another EEA country (EU Member States, Iceland, Liechtenstein and Norway) or Switzerland, avoid a double levy of social security contributions by EU Regulations. An employee can apply for an exemption from social security contributions in the other EEA country for 12 months with a further 12-month extension. If it is in the employee's interest, an exceptional exemption for a period of 5 years may also be applied for. In such cases, the German employer continues to withhold German social security contributions.

The same provisions also apply to employees who are seconded from another EEA country or Switzerland to Germany. They may be exempt from German social security contributions during their temporary activity in Germany. In these cases, there are no withholding obligations as regards German contributions.

Employees who are seconded to Germany for a limited period and continue to be paid by their non-resident employer are not subject to German social security contributions. An obligation to withhold social security contributions therefore does not generally arise for non-resident employers.

Outside the area of application of the EU Regulations, double charge of social security contributions is avoided by bilateral agreements.


*The tax rates for 2013 may go up by 4.5 percent, however, no agreement has been reached yet on that matter. It is still subject to approval by the Lower House of the German Parliament and the federal Council.



Dorine Fraai / Expatica

Dorine Fraai specialises in international tax planning for both individuals and companies.
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9 Comments To This Article

  • yasmina posted:

    on 29th April 2016, 11:52:09 - Reply

    Does someone know a good Tax consultant in Germany that is still not fully booked to help me with my tax clearance.

    [Moderator's note: You can also post questions on our Ask the Expert free service.]

  • SD posted:

    on 22nd December 2015, 07:04:03 - Reply

    I stayed and worked in Germany for 2.5 Months only. Am I eligible to claim for TAX refund through TAX Consultant?

    [Moderator's note: You can also post questions on our Ask the Expert free service.]

  • Ganesh posted:

    on 10th February 2015, 15:12:08 - Reply

    I would like to do income tax filing by online so please provide web link for the same
  • Matt posted:

    on 16th January 2015, 15:47:24 - Reply

    Good piece of advice !

    A couple advices from my side:
    - You can get your tax up to 4 years back,
    - The prices of tax advisory in Munich (for basic tax declaration) vary from 36 %u20AC up to 170 %u20AC
    - Depends how much your earn. Here you can calculate the the price for yourself: http://getdoido.com/tax_declaration

    If you want to know more how to do the tax declaration by yourself then check my last blog post where I described step-by-step how to make a tax declaration by yourself in Germany :)
    http://blog.getdoido.com/2015/01/get-your-tax-money-back-a-step-by-step-guide/

  • Felix Bodeewes posted:

    on 18th March 2014, 13:19:26 - Reply

    Great and very detailed article on this difficult subject. From our experience we can say that a good tax filing software can help with many details mentioned.

    As the German market leader for online tax filing, we will soon launch a version of www.steuergo.de in various foreign languages.

    Currently, we are looking for beta testers and contributors. Please contact me if you are interested in contributing.
  • Stane posted:

    on 25th January 2014, 22:32:26 - Reply

    How it is if you have a family and you work in Germany.
    Wife work in resident country.
    Do you belongs under Category IV or III ?
  • Eric posted:

    on 7th January 2014, 09:38:32 - Reply

    Yes certainly, google for german wage calculator and adjust the number of children accordingly (as well as the tax category you belong)
  • Germantax posted:

    on 10th April 2013, 23:27:44 - Reply

    Hello,

    sorry to say that.... Your article contains mistakes - please revise!

    Example:

    ....(married tax table: EUR 8,060) is wrong. The € 8.060 was the tax-free amount up to 2012. For married couples the law grants a tax-free amount of 2 * € 8.130 = € 16.260!

    ...which is capped at 5.5 percent of your income. What ? It is 5,5 % of the income TAX.

    Cheers
  • frank posted:

    on 10th April 2013, 02:09:10 - Reply

    http://www.bruttonettogehaltsrechner.com displays a table of already calculated net salaries in Germany