Income tax
As an employee in Germany you must pay income tax. This tax is levied on all income in a calendar year, including your income from non-self-employed work.
If you work as an employee for a company, however, you need not worry about income tax yourself.
Your employer will withhold Lohnsteuer (pay-as-you-earn tax) from your gross pay and remit it to the Finanzamt (tax office). In addition, your employer will remit the Solidaritätszuschlag (solidarity surcharge) and, where applicable, Kirchensteuer (church tax) if you are a member of a religious community that levies church tax.
Furthermore, your employer will deduct in advance the contributions for pension, health, long-term care and unemployment insurance from your pay and remit them.
You can see the amount of your net pay on your payslip or have it calculated with an income tax calculator on the internet.
How high is income tax?
The amount of income tax in Germany depends on various factors, such as income, marital status and tax class. There are different tax classes, which have differently high tax rates depending on personal circumstances. In addition there are allowances and deductions that can affect the amount of income tax.
In general, income tax rises with increasing income. The top tax rate is currently 42% and applies to taxable income from 57,051 euros per year (for single persons, as of 2023). There are, however, also many factors that can influence the amount of income tax, so it is difficult to make a general statement about how high income tax is in Germany.
Income tax return
After the end of a calendar year you have the option of using the pay-as-you-earn tax calculator to check whether you have paid too much pay-as-you-earn or income tax. To do this you must submit your income tax return and provide details of your actual income and financial burdens. If you are entitled to a refund, the state will check this and reimburse you. It is as a rule worthwhile completing the tax return, as most citizens have received a reduction. According to the Statistisches Bundesamt (Federal Statistical Office) they received on average almost 1,000 euros back.
How you submit your income tax return
To submit an income tax return in Germany there are several options:
1. Paper form: You can complete the tax form and send it by post to your competent tax office. You can either download the form online and print it, or request it from the tax office.
2. ElsterOnline: A further option is submission via the ElsterOnline platform of the Bundeszentralamt für Steuern (Federal Central Tax Office). Here you can complete your tax return electronically and transmit it directly to your tax office.
3. Tax adviser: If you have a tax adviser, they can prepare the tax return for you and submit it to the tax office.
Regardless of which option you choose, you must list your income, expenses and any special expenses such as donations or exceptional burdens. In the income tax return you also state whether in the previous year you incurred medical costs, tradesperson services or household-related services. These details can lead to you receiving certain tax reliefs or allowances.
After you have submitted your tax return, the tax office checks your details. If everything is in order, you receive a tax assessment. Otherwise you may face queries from the tax office or a possible additional payment.
Can you prepare the income tax return yourself?
Whether it is better to prepare the income tax return yourself or to engage a specialist depends on various factors, such as the complexity of the tax return and your own tax knowledge.
For employees with simple tax circumstances, such as income from non-self-employed work and no exceptional tax situations, it is as a rule possible to prepare the income tax return yourself. Free tax software or online portals are available to help with preparing the tax return.
If, however, more complex tax situations arise, such as income from self-employment or from letting and leasing, it is advisable to engage a specialist. A tax adviser or a Lohnsteuerhilfeverein (income tax assistance association) can in such cases help avoid mistakes and make use of possible tax advantages.
It is also important to note, however, that engaging a specialist involves costs, and these can vary depending on the scope of the work.