Discover how income tax in Germany works for employees, including details of what social security contributions you’ll need to make.
Anyone living in Germany is liable for income tax in Germany on their domestic income and assets as well as worldwide income and assets. Non-residents are subject to German income tax on their income generated within Germany. In comparison to some other countries, Germany does not have a special tax regime for incoming expats, and you may also be liable for taxes in your home country. This guide provided by H&R Block gives you the rundown on your German taxes as an employee.
Filing taxes in the United States from abroad can be a hassle, but it doesn't have to be. With its easy online registration process and remote tax filing process, H&R Block ensures that expats can keep their taxes up-to-date back home.
The annual tax return and assessment
Everyone subject to German income tax must file an income tax return annually with the appropriate local tax office, depending on the place of residence. Check with the municipality that you are registered in for additional information on which local tax office that you will report your taxes with.
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. As a result, the normal deadline is 31 May (or 31 December if the tax return is prepared by a tax professional). This year the deadline was extended so you must file your 2018 return before 31 July 2019.
If you don’t speak German, don’t fear! You can also file your own German taxes in English with wundertax, an online service that guides you through the entire process step by step, using simple, user-friendly language. Check out their step-by-step video tutorial on how to file your German taxes easy-peasy:
After filing, tax authorities review the return and send out an assessment notice afterwards.
Some residents of Germany may be liable to pay taxes in other countries, such as US citizens and Green Card holder who are obliged to file a tax return with the IRS when living abroad.
For those that need to file their taxes in the United States, consult a company that offers a specialized tax filing service for expats such as:
The Expatica guide to taxes for American expats can also provide more insight.
Individual income tax in Germany: 2019 rates
The first €9,169 (or €18,338 for married couples submitting a combined return) earned each year is tax free. Any amount after that is subject to income tax.
Income tax in Germany is progressive: first, income tax rates start at 14%, then they rise incrementally to 42%; last, very high income levels are taxed at 45%. The top tax rate of 42% applies to taxable income above €55,961. Finally, for taxable income above €265,327, a 45% tax is applicable.
In addition to income tax, everyone has to pay solidarity tax, which is capped at 5.5% of your income tax.
Finally, if you are a member of a registered church in Germany, you will also have to pay a church tax of 8 or 9% of your income, depending on which federal state you live in.
So, what is taxable income in Germany?
Any income from the following categories counts as taxable income:
Taxable income includes any and all income in areas such as:
- agriculture and forestry;
- a trade or business;
- independent personal services;
- employment, as well as compensation from past employment;
- capital investment;
- immovable property and certain tangible movable property;
- royalties; and
- other income, such as gains from private transactions, alimony, or annuities.
In general, the tax rates mentioned above apply to all income. This, however, does not apply for interests, dividends, and capital gains on stocks.
Interests, dividends, and capital gains on stocks are subject to a flat tax of 25%, in addition to the solidarity charge and church tax if applicable.
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.
Social security contributions in Germany
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 in Germany are subject to the country’s social security system, and income tax in Germany takes this into account as a result. Employers withhold social security contributions from the employee’s wage or salary payments. Hence, the employer and the employee share the burden of social security contributions, with each party covering 50% of the cost.
The employer must withhold the employee’s part from the salary and transfer it together with the employer’s contribution to health care costs, which consequently distributes the relevant amounts to Germany’s other social security institutions. The contributions depend on the employee’s salary up to certain maximum levels.
For 2019, rates for income tax in Germany (including both the employee’s and the employer’s parts) are as follows:
|Nursing care insurance||
Germany’s social security system applies to all employees working and earning income 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 (i.e., EU member states, Iceland, Liechtenstein, and Norway) or Switzerland avoid a double levy of social security contributions by EU regulations. In fact, an employee can apply for an exemption from social security contributions in the other EEA country for one year with the possibility for an extension of an additional year. If it is in the employee’s interest, an exceptional exemption for a period of five years may also be applied for. In either case, the German employer continues to withhold social security contributions for income tax in Germany.
The same provisions also apply to employees seconded from another EEA country or Switzerland to Germany. Because of this, they may be exempt from German social security contributions during their temporary activity in Germany. However, in these cases, there are no withholding obligations as regards German contributions.
However, employees 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 of the EU, bilateral agreements on social security contributions with other countries exist, thus preventing double charges on social security contributions for employees.