Planning on living and working in Germany? Find out how the local tax system works with our expert guide on how to file your income taxes in Germany.
Both foreigners and natives must pay income taxes in Germany on their domestic and worldwide income and assets.
Non-residents of Germany are subject to income tax on any German income but note that, depending on their home country, expats may also be liable for taxes in their home country.
The tax office uses your tax return to see if you are paying enough income tax. It’s balanced out against your spouse’s income, any additional income you might receive, and tax deductions for things like statutory insurance contributions, childcare expenses, and charitable donations.
This comprehensive guide covers the following topics on German income tax:
- Introduction to income tax in Germany
- Earnings subject to income tax in Germany
- How to file your tax return in Germany
- Income tax rates in Germany
- Income tax in Germany for foreigners
- Tax refunds in Germany
- Tax fines in Germany
- Income tax advice in Germany
H&R Block is a tax advisory service specializing in expats taxes. Their team of experts can help Americans living in Germany with their US tax return. If you need to file your US tax return, make the process easier by getting in touch with the professionals at H&R Block.
Introduction to income tax in Germany
Employed workers in Germany are subject to a payroll tax, and therefore don’t need to submit an income tax return (Einkommensteuererklärung) – but many people still do in the hope of receiving a refund.
It’s compulsory to submit a tax declaration if:
- you are self-employed in Germany;
- you have more than one source of income;
- some income was received from abroad;
- you’ve got divorced and you or your ex-partner remarried in the same year;
- you received German welfare benefits such as child benefit, sickness benefit, maternity pay, or unemployment benefit;
- you want to apply for tax deductions;
- the tax office has sent you a letter requesting you to submit a tax return.
The municipality you register with can give additional information on which local tax office you need to report your taxes to.
The Federal Central Tax Office (in German) has a search facility to help you find your local tax office. There are also a growing number of expat-friendly, English-speaking online platforms that help you file your German tax returns. These include:
In addition to income tax, Germany has a compulsory social insurance scheme – and income tax takes this into account.
Who pays income tax in Germany?
If you’re a resident in Germany, you must pay income tax on your German and worldwide income, regardless of whether or not you’re an expat.
The rules are only different if you’re not a German resident; in this case, you’ll still need to pay income tax, but only on the income you earn in Germany.
Who is exempt from income tax in Germany?
No one is exempt from paying tax in Germany if their income exceeds the tax-free personal allowance. However, some people can get additional allowances and tax rebates.
For instance, some disabled people can get things like car tax reduction, state care allowances, and special protection against dismissal. This all works to help reduce their tax bill.
Earnings subject to income tax in Germany
Taxes on income and salary in Germany
Any income from the following categories counts as taxable income:
- employed income, as well as compensation from past employment;
- capital investment;
- self-employed income;
- business income;
- immovable property and certain tangible movable property;
- gains from private transactions, alimony, or annuities.
Some types of income are tax-exempt but are used to determine the tax rate – such as unemployment benefits, maternity leave payments, and certain income that’s been taxed in another country due to a double tax treaty.
Taxes on employment benefits
As a general rule, all types of benefits and remuneration you receive as an employee are considered taxable income.
These include things such as:
- payments of school tuition fees
- cost of living allowances
- expat premiums
- housing allowances or housing provided by an employer
Taxes on savings and investments
Savings and investments are subject to tax in Germany. Worldwide investment income is taxed at 25%. A solidarity charge and church tax may also be applicable.
There’s a standard annual deduction that can be offset against worldwide investment income; for single taxpayers, that’s €801, and for couples, it’s €1,602.
Taxes on rental income
Income from renting out a property is subject to German income tax unless it’s exempt under a double tax treaty.
Landlords must submit a tax return detailing how much rent they received during the year. In addition to rental income tax, you may need to pay a solidarity surcharge of 5.5% on rental income.
You can deduct expenses such as mortgage income, maintenance, improvements, and repairs from the rental income you receive.
If you come to sell a buy-to-let property, you may have to pay capital gains tax on any profit you make from the sale if you’ve owned the property for 10 years or less.
How to file your tax return in Germany
Employed workers don’t have to submit a tax return unless they receive income from sources other than their main form of employment.
Payroll tax is taken out of employed workers’ salaries, which means their income is taxed automatically. The same goes for social contributions for various types of mandatory insurance.
Self-employed workers in Germany, however, must submit a tax return each year.
Income tax deadlines in Germany
German income tax returns are due after the end of the tax year – which is the same as the calendar year.
Your tax return will be due after the tax year has ended; the normal deadline is 31 July. So, you must submit your 2020 return by 31 July 2021.
If your tax return is prepared by a tax professional, it is due on 31 December.
Two to six months after submitting your return, you will receive a tax assessment from the tax office.
This is a document detailing whether you should expect a refund – if you are owed money back, it will be paid directly into your bank.
If you owe tax, you’ll be given four weeks to pay it.
Income tax forms in Germany
You can complete your German tax declaration on paper or online using the Federal Central Tax Office’s software.
Everyone submitting a tax return must fill out a general tax form (Mantelbogen). There are a number of additional forms that you might have to fill out, depending on your individual circumstances.
To file online, you can visit Mein ELSTER (in German) for submissions.
If you need some extra help, there are also some online explanatory forms (in German) for online filing.
Income tax rates in Germany
Income tax in Germany is progressive. Rates start at 14% and incrementally rise to 42%. A top rate of 45% is also present for those with very high earnings.
The German government reviews income tax bands every year. The bands for 2020 and 2021 are the following:
|German income tax bands||German tax rate|
|Up to €9,408||0%|
|€270,501 and above||45%|
|German income tax bands||German tax rate|
|Up to €9,744||0%|
|€274,613 and above||45%|
Historically, German taxpayers have also been required to pay a solidarity tax (Solidaritätzuschlag), but new rules introduced in January 2021 mean the vast majority of workers are now exempt.
Solidarity tax is charged at 5.5% of your income tax bill, but from January 2021, you’ll only need to pay if you earn €61,700 or more in the calendar year.
If you are a member of a registered church in Germany, you’ll also have to pay a church tax (Kirchensteuer) of 8–9% of your income, depending on which federal state you live in.
To file your tax return, you’ll first need to know your tax class (Steuerklasse). This should have been assigned to you by the tax office when you first registered for tax, but it is largely dependent on your marital status.
- Class 1: single, widowed, divorced, long-term separated
- Tax class 2: single parent
- Class 3: married with a higher income than a partner in class 5
- Tax class 4: married with an equal income
- Class 5: married with a lower income than a partner in class 3
- Tax class 6: second job or tax deduction.
Married couples in class 3 or class 5 who have unequal salaries can save money on their overall tax bill.
A very simple example would work like this:
- Spouse A: owes annual German income tax of €17,028
- Spouse B: owes annual German income tax of €2,701
- Overall tax for the couple when paying tax separately: €19,729
- Joint couple’s tax using class 3 and 5: €18,014 – a savings of €1,715 per year.
To calculate the German income tax you owe on your wages, you can use the SteuerGo tax calculator.
Personal tax allowance and deductions in Germany
Making the most of the tax allowances and deductions available increases the chances of getting a tax refund.
In 2021, the first €9,744 (or €19,488 for married couples submitting a combined tax return) earned is tax-free. Any amount over that is subject to income tax.
Charitable donations to German charities are deductible up to 20% of gross income.
If you make alimony payments to an ex-partner, up to €13,805 can also be deducted.
Taxpayers with children can claim education expenses if the child attends a private school in Germany equivalent to 30% of tuition fees, along with child allowance and childcare costs for children under the age of 14.
If you’re employed, you can deduct certain income-related expenses that are documented and haven’t already been reimbursed by your employer.
These are usually capped at €1,000 a year, and can include the following:
- your job causing you to move house;
- traveling or commuting;
- further training expenses;
- professional equipment;
- costs if you need to run two households as a result of work.
From 2021, you can also claim €5 per day for any day you’ve had to work from home, up to a maximum of €600 per year.
You can also make insurance contributions, including:
- German health insurance: 100% deductible for statutory health insurance and private health insurance for primary healthcare;
- long-term care insurance contributions: 100% deductible;
- unemployment insurance contributions: up to €2,800 per year;
- German pension scheme contributions: up to €25,046.
Self-employed income tax allowances in Germany
In Germany, self-employed workers are subject to the same €9,744 allowance as other workers, but they also get a €2,800 allowance for health insurance.
Another way self-employed workers can reduce their tax bill is to offset work-related outgoings against their overall tax bill.
Depending on your business, this can include things like work-related travel, stationery, and the services of an accountant.
Some people, such as journalists, can write off expenses in a lump sum without the need for separate receipts up to 30% of their revenue, or €2,455 – whichever amount is lower.
Income tax in Germany for foreigners
There aren’t any notable deductions for expats when it comes to income tax in Germany.
The main thing expats need to consider is whether they’re at risk of paying tax twice – both in Germany and in their home country. Germany has 96 bilateral tax agreements, with countries including Ireland, New Zealand, Australia, the United States, and the United Kingdom.
If you’re looking for professional help, the Federal Central Tax Office (in German) has a search facility to help you find your local tax office that may be able to offer advice. However, there are also a growing number of expat-friendly, English-speaking online platforms that help you file your German tax returns. These include:
Check out our guides on filing your taxes while living abroad for more information.
Tax refunds in Germany
On average, nine out of 10 people who submit a tax return in Germany receive a refund – that’s according to data from the Federal German Statistics Office.
As taxpayers have to pay their income tax throughout the year, it may be that, once they submit a tax return, they’ve already paid too much.
If you are submitting a tax return voluntarily, you can apply for refunds for up four previous tax years.
It generally takes two to six months to find out if you’ve been successful in getting a refund.
Tax fines in Germany
Anyone who fails to file their German income tax return on time is subject to late filing fees.
For each month your return is late, you’ll be fined 0.25% of the total assessed tax. So, if your tax total is €10,000, you’ll be charged €25 a month in late fees.
If you’re late paying the tax you owe, you’ll be fined 1% of the unpaid each month that you fail to pay it.
Income tax advice in Germany
Income taxes for expats can be tricky. You’ll need to make sure you’re fully up to speed on the country’s tax rules to avoid any nasty fines for getting your returns wrong, as well as finding out about any double tax treaties in place.
Websites such as the International Federation of Accountants can help you find member organizations.
You can also get expert advice on tax issues from organizations specializing in offering expat financial support and advice, such as Wundertax.