Tax System in Germany

Hello all, 
During a job interview, salary discussion will be done for annual gross salary in Germany. That’s why you should know basics of the Tax System in Germany. Percentage of the income tax (in German Lohnsteuer) will be changing according your personal things like marital status, number of kids you have and so on.

Additional to income tax you have to pay solidarity surcharge on income tax (in German Solidarit├Ątszuschlag) from your salary (5.5% in 2019), is an additional tax which everyone, has paid employment in Germany, and every German firm must pay. It is designed to help cover the huge costs associated with re-unification and the economic development of the former East Germany.

According to your religion and also your request, you should pay tax for church or you can select not to pay. And insurance, pension etc. will reduce your salary up to 42% as unmarried employee.

Tax Categories at Tax System in Germany

In Germany, there are six different tax categories (in German Steuerklasse). Your marital status, working condition and so on will be checked, and as a result you will be placed one of the following
categories. There are some webpages, where you can calculate your net income from annual / monthly gross income.

  • Annual or Monthly Net Income Calculator in German, Link
  • Annual or Monthly Net Income Calculator in English, Link

Tax Category 1 / Steuerklasse 1

Are you single (unmarried), permanently separated or divorced? Then you are in tax category 1. If you are in this category you are likely to apply for the highest income tax rate in Germany. In this tax
category, the income tax is about 42% of your salary, which depends on which state of Germany you are living.

Tax Category 2 / Steuerklasse 2

This tax category is for single parents who live alone and apply for tax relief.

Tax Category 3 / Steuerklasse 3

Employees who are married or in a civil partnership can choose this tax category if one of the spouses does not work or earns considerably less than the other. Other spouse or partner then selects tax category 5.

Note that if two spouses or partners earn about the same amount, tax category 4 is better for them.

Tax Category 4 / Steuerklasse 4

Married couples and civil partners can apply for the income splitting system. Income splitting means that the one who earns more, only has to pay the income tax rate of the one who earns less. In simple words, this means that you save tax!

Tax Category 5 / Steuerklasse 5

Jobholders who are married/in a civil partnership are in this tax category if their spouse or partner selects tax category 3.

Tax Category 6 / Steuerklasse 6

This applies to everyone who has a second job or more.

Saving Tips before Tax Return

When you got married, then there are some options to save money.

Option 1:

Option 1 is changing your tax category after calculation with different cases. Therefore you should fill this form and send to the Finance Office in your city (Link)

Selection of Category 3-5

One of you is earning more than other, then spouse with high income should select category 3 to increase net income to the house. The other will be placed in category 5 automatically.

Selection of Category 4-4

If both of you are earning equally / similar, then 4-4 will be ok. 

Option 2:

Second option is something which helps you to save money in long term. You can pay for private pension plan at your company, which will reduce your gross salary, which results less tax that you paid. For that, you can ask HR partner at your company regarding company pension plan and in this case company will also pay extra in your pension plan.

On the other hand you can ask your bank about pension plan, which will be saved for future, to buy a house or for the pension itself. Government will also pay some extra amount in this plan.

Thank you very much for reading this entry, please leave a comment below and/or share it,if you liked it.

At new entry, I will explain What to Know about Tax Declaration in Germany.

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