Income Tax in Germany for Foreigners: A Comprehensive Overview

Income tax in Germany for foreigners may seem a bit overwhelming and complicated, especially if this is your first time learning the ins and outs of a new country’s tax system. Before you start working in Germany, it’s not a bad idea to familiarise yourself with at least the basics of how the system works and what are the actions you’ll need to take to adhere to these rules. 

What’s the German tax rate? How is income tax in Germany handled? In this article, we’ll try to give a comprehensive overview of how the progressive income tax system works in the country, and what that means to you who are seeking to move there to live and work.

German Income Tax: A Brief Overview

While you don’t have to understand every aspect of German taxes as someone who’s planning to work there, getting at least some brief knowledge about tax brackets and other basics is essential.

First off, anyone who lives in Germany and is employed is subject to Einkommensteuer, or individual income tax. Furthermore, the country uses a progressive tax rate, meaning that the amount of money people have to pay to the government increases with taxable income. Fortunately, income tax in Germany is usually deducted from your paycheck directly. This is the system known as Lohnsteuer, in which the employer withholds your tax from the salary and remits it to the tax authorities instead of you.

The marginal tax rate in Germany means the percentage of the last Euro you earn that can be taxed, which, as mentioned above, will depend on your income and the type of tax in question. According to data from 2024, German tax brackets for income tax are the following: 

• No tax if you earn up to  €11,604 per year.
• THe progressive rate is from: €11,605 to €66,760 varying from 14% to 42% 
• The next bracket is from €66,761 to €277,825 where the marginal tax rate is 42%
• Over €277,826, the German income tax rate is 45%

In addition to this, you also have other mandatory contributions and taxes you may be subject to, such as social security contributions, solidarity surcharge, and so on, but let us talk about those later.

The German Taxation System: Tax Classes

There are a total of six Steuerklassen (tax classes) and the one you will fall into will determine the tax rate you’ll have to pay.

• Class I: Single/civil partnership/widoved/divorced
• Cass II: Single but entitled to single-parent allowances
• Class III: Married with a spouse who doesn’t earn wages or has tax category classifications/recently deceased
• Class IV: Married and living together with both partners residing and earning in Germany
• Class V: Married with one of the partners being classified under class III.
• Class VI: Individuals who earn more than one wage from one or several employers

The Tax System in Germany: Tax Identification Number and Paying Taxes

Every individual who resides and works in Germany will receive a Steueridentifikationsnummer (tax identification number) to be easily identifiable in the German tax system.

Source: Unsplash

This is a 11-digit number ID that is essential for processing income tax. It should appear on all declarations ,communications, and applications you submit to the tax authorities in the country. On the bright side, you do not have to apply separately to get a tax identification number after moving to Germany. You will get the ID automatically via post after a few weeks of registering your new address.

If you are having troubles finding your tax ID, you can easily check it on three documents:

• In the Einkommensteuerbescheid or income tax assessment
• In the Finanzamt, which is the letter you received from the tax office
• On the Lohnsteuerbescheinigung, which is your payroll tax certificate

Income Tax In Germany: How The Automatic Deduction Works

As mentioned above, you don’t have to worry too much about taxes in Germany, especially income tax, as the latter will be deducted from your gross wages automatically and will be transferred to the tax office. Your health insurance, pension, unemployment insurance, and nursing care are also deducted the same way and transferred by your employer. You pay your social security contributions while your pension and other insurances are shared between you and your employer.

Generally speaking, your employer covers nearly half of the amount of tax money, while around 22% of your own income ends up in social contributions.

How Much Income Tax in Germany Does One Have to Pay: Returns and Tax Declarations

If you have multiple income sources, have significant deductions, you can also file annual tax returns to reconcile tax liability. The tax year in the country follows the calendar year. Usually your deadline to submit returns is July 1st of the following year, but it can be extended to December 31st in some cases.

Income tax return in Germany is a straightforward process, which involves declaring all of your income sources, where the deductions can be applied, and declaring all credits that ensure that you have paid the necessary amount of taxes that year. After submitting the declaration will the tax office check whether you have any excess payments that can be refunded.

Remember, those workers who are taxed and employed at source arenát required to perform tax returns, only in specific circumstances, like if they changed jobs throughout the year or earned additional money from self-employed jobs.

You can also submit tax declarations online with the help of the encrypted  ELSTER tool (which is short for Elektronische Steuererklärung. Alternatively, you can also submit your income tax declaration with the help of traditional forms from the tax office, or download the documents online and print them.

Seconded Employees Vs. Tax in Germany

While it’s unlikely to happen, if you are working as a seconded employee, you will continue to work for the same company, remaining on your home country’s payroll, meaning that you will continue to pay taxes at home and won’t need to pay tax in Germany. If this is the case, you will also not be obliged to pay social security contributions, and the rule usually applies to two years but it can be extended to a total of five years.

Tax In Germany: Other Contributions

Apart from German income tax and social security duties, you may be subject to other types of taxation. Even if not, you should be aware of them.

Source: Unsplash

Church Tax (Kirchensteuer)

As registered Christians or members of the Jewish congregation, when talking about tax in Germany, you will also probably have to pay church tax, which is deducted directly from your wage, similarly to income tax. The tax rate in Germany for Kirchensteur is a rate of 8-9% of your income and it ensures that religious institutions receive direct funding from its members.

Solidarity Tax (Solidaritätszuschlag)

Introduced in 1991 to invest in and rebuild Eastern Germany after the unification, it now aids in financing ongoing expenses in all of Germany. Four years ago, it was abolished for most working taxpayers (with the exemption limit being a yearly taxable income of around €73,000 for single individuals and approximately  €151,000 for married couples), around 10% of the country’s highest-earning professionals still pay it.

VAT (Mehrwersteuer)

VAT or Value-added TAX in Germany is added to every non-essential service and item in the country, with a standard tax rate of 19%, with some items (like flowers and books) having a reduced tax rate of 7%.

TV and Radio Fee (Rundfunkbeitrag)

Licence fees for TV and radio tax are also mandatory in Germany, costing only €18.36 per household, paid monthly. Expats usually get notified after registering in Germany about the payment by the contribution service.

Property Sales Tax (Grunderwerbsteuer)

You only have to pay property tax if you buy real estate in Germany. It’s only paid once if experts value the property higher than €2,500, with typical tax ranges hovering between 3.5% to 6.5% of the properties overall cost.

Pet Tax (Hundesteuer)

Pet tax is paid after dogs in Germany, after registering your pet at the tax office. The amount of this levy varies from €90 up to €200 per year, but can be significantly more in the case of dangerous breeds. Keeping a second dog will usually have a higher tax price, typically to discourage citizens from having too many house pets. On the other hand, service animals may be exempt from this tax.

Car Tax (Kraftfahrzeugsteuer)

This is the liability you pay for your own car, with the amount of money you have to pay depending on several factors, such as car make, model, engine size, and fuel type (for instance, diesel-powered cars have a higher tax rate). If the car was first registered before 2009, then the tax will be calculated based on the car’s emission class.

Maneuvering German Tax Policies

While the tax system in Germany is as intricate as in most European countries, that shouldn’t discourage you from seeking work here. As in the rest of the EU, the most essential taxes are usually deducted directly from your payments meaning that rarely will you have to worry about them directly.

If you are having any doubts, you can always use relevant tax calculators and reach out to tax experts at your local office to learn more. 

And if you are considering moving to the country to find work, you can always explore our current job offers in Germany.