Taxes and social security contributions
Anyone actively employed in Germany and above a defined minimum income automatically pays taxes and social security contributions. The following covers key taxes and different social security contributions.
Germany is a real tax haven ─ at least if you ask taxes themselves! Almost 40 different types of tax call Germany their home. Some are paid indirectly by those living here, such as tax applied to the purchase of goods and services. Other taxes are collected directly based on one’s salary or are invoiced separately.
Germany’s tax system is not only comprehensive, but also efficient ─ what else would you expect from Germany? Take, for example, the fact that the various tax revenues collected allow Germany to have such a strong social system. Public administration, schools, hospitals and roads as well as safety and security agencies are also financed using tax revenue.
Tax identification number
The tax identification number is an eleven-digit number that Germans are assigned automatically soon after birth and newcomers shortly after becoming registered in Germany. This number remains valid for life and does not need to be renewed, even if you get married, move house or legally change your name.
The tax identification number simplifies the tax system as it allows every citizen to be easily accounted for. This number does not include or reference any private information about you or your tax office.
Income tax, in simple terms, is payable on your income and is based on the sum of your total income for the period of one year. You can deduct certain expenses ─ such as travel costs to your place of work ─ from this sum on your annual income tax return. That which remains is your taxable income.
Germany has seven different types of income:
Income from …
... Agriculture and forestry (i.e. you are employed as a farmer or forestry worker)
... Commercial enterprise (i.e. you own your own business)
... Freelance work (i.e. you are self-employed)
... Non-self-employed work (i.e. you receive a salary or wage as an employee)
... Capital assets (i.e. you generate income from returns, interest, etc.)
... Rental and lease agreements (i.e. you generate rental income)
... Other sources of income (i.e. you receive a monthly pension, have sold a property, etc.)
The amount of income tax directly depends on your income. Higher incomes are not only associated with a higher tax burden as the average percentage at which your income is taxed also rises.
The term “top tax rate” refers to the highest possible taxation. This rate only applies above a certain income threshold, and then only to the part of your income that exceeds this threshold. Since your income below this limit is taxed at a lower percentage, however, your overall average tax burden is lower than the top tax rate.
Payroll tax is a monthly tax and is deducted directly from your gross salary by your employer and paid to the tax office.
Wage tax is your advance payment on the income tax that is payable once annually. You then automatically pay income tax every month by way of your employer and use your annual income tax return to determine whether you still have to pay something in arrears or are entitled to receive money back. You can either prepare your annual income tax return by yourself or have an agency do it for you.
The solidarity surcharge ─ also known as “Soli” in German ─ was introduced in 1991 following the reunification of Germany. The intent of this supplementary tax was to finance the costs of reunification and originally was only valid for one year.
As of 2021, the solidarity surcharge only applies to income above a certain level. Thanks to this new regulation, most citizens no longer have to pay the solidarity surcharge from 2021 onwards.
Church tax is directly linked to income tax. To this end, your income tax is first calculated, which then serves as a basis for determining church tax.
As its name implies, church tax mainly benefits churches and related institutions. It is only levied if you belong to a religious community that is considered a corporation under public law. These primarily include the Roman Catholic and Protestant churches as well as certain Jewish churches. Christian Orthodox churches, on the other hand, do not levy church tax.
Tax calculator and income tax tables
To estimate in advance how much you must pay in taxes from your gross salary, various online calculators can be used. One calculator in particular is that provided by the Federal Ministry of Finance: calculator
Social security contributions
Anyone actively employed in Germany who earns above the defined minimum income level is automatically insured against certain risks. For this, you pay contributions ─ also known as social security contributions. These are deducted from your gross salary and transferred to the appropriate offices by your employer.
The following informs you about the risks that you are insured against by social security contributions. More information about individual insurance policies can also be found at Finance & Insurance.