All about Taxes and Social Security in Germany

Working in Germany means navigating a comprehensive system of taxes and social security contributions that are automatically deducted from your salary. This guide will help you understand how these deductions work, what benefits you’re entitled to, and how to manage your tax obligations effectively.

Overview of Salary Deductions in Germany

From Gross to Net Salary: What Gets Deducted

When you work in Germany, various taxes and social security contributions are directly deducted from your gross salary before you receive your net pay. Your monthly pay slip will detail all these deductions, showing exactly where your money goes.

The main categories of deductions include:

• Income tax (automatically deducted as wage tax)
• Social security contributions (health, pension, unemployment, and nursing care insurance)
• Church tax (if applicable)
• Solidarity surcharge (for higher earners)

On average, you can expect total deductions of around 40-45% of your gross salary, with approximately 20-22% going to social security contributions and the remainder to taxes.

Taxes in Germany

Income Tax (Einkommensteuer) and Wage Tax (Lohnsteuer)

The most significant tax for employees is income tax, which is automatically deducted from your wages as wage tax by your employer and transferred directly to the tax office. This system ensures you don’t need to worry about making quarterly payments or managing large tax bills at year-end.

Your employer calculates the wage tax based on your income level, tax bracket, and personal circumstances, making the process seamless for employees.

Tax Brackets (Steuerklassen) Explained

Germany uses six tax brackets (Steuerklassen I-VI) that determine how much tax is deducted from your salary. Your tax bracket depends on your marital status, whether you have children, and if you have multiple jobs:

• Tax Bracket I: Single, divorced, or widowed without children
• Tax Bracket II: Single parents with children
• Tax Bracket III: Married with higher-earning spouse (paired with spouse in bracket V)
• Tax Bracket IV: Married couples with similar incomes (both spouses use bracket IV)
• Tax Bracket V: Married with lower income (paired with spouse in bracket III)
• Tax Bracket VI: For second jobs or multiple employment

Married couples can choose between different bracket combinations (III/V or IV/IV) to optimize their tax situation throughout the year.

Basic Personal Allowance and Progressive Tax Rates

Germany provides a basic personal allowance (tax-free amount) on which you pay no income tax. As of 2024, this allowance is €11,604 for single persons and €23,208 for married couples and registered partners.

Above this tax-free threshold, Germany uses a progressive tax system:

• Tax rates start at 14% for income just above the basic allowance
• Rates increase on a sliding scale as income rises
• The rate reaches 42% for higher earners (income over €66,761 as of 2024)
• The maximum tax rate can reach 45% for very high earners

This progressive system ensures that those with higher incomes contribute proportionally more to public services and infrastructure.

Church Tax (Kirchensteuer)

If you’re a member of a religious community that levies church tax in Germany, this will also be automatically deducted from your salary. Church tax is collected by the Tax Office on behalf of religious communities and typically amounts to 8% or 9% of your annual income tax, depending on your federal state.

Note that Muslims generally do not pay church tax in Germany, as none of the Muslim communities currently levy this tax.

Solidarity Surcharge (Solidaritätszuschlag)

Originally established to fund German reunification costs, the solidarity surcharge was mostly abolished for most taxpayers in 2021. However, it still applies if your annual taxable income exceeds approximately €73,000 for singles (higher thresholds apply for married couples).

Other Relevant Taxes (VAT, Corporation, Trade)

Beyond income tax, you’ll encounter other taxes in Germany:

Value-Added Tax (VAT) applies to goods and services at a standard rate of 19%, with a reduced rate of 7% for essential items like food and books. This affects your purchasing power but isn’t deducted from your salary.

Corporation Tax applies to legal entities, while Trade Tax affects registered trades (though freelancers are typically exempt from trade tax).

Residency and Tax Liability for Foreigners

Your tax liability in Germany generally applies if you have a residence in Germany or stay more than 183 days per calendar year in the country. This includes your total worldwide income, although double taxation agreements with other countries help prevent paying tax twice on the same income.

Foreign workers are taxed in Germany the same way German nationals are, ensuring equal treatment under the tax system.

Germany’s Social Security System

How Social Security Contributions Work

Germany’s social security system provides comprehensive financial security for residents during illness, unemployment, retirement, and other life circumstances. If you earn above €538 per month as an employee, you’re automatically subject to social security contributions and become a member of various insurance schemes.

You and your employer each pay a fixed percentage of your salary toward these contributions, with the money transferred directly from your gross income to the respective insurance providers.

1. Statutory Health Insurance (Krankenversicherung)

Statutory health insurance is mandatory for almost everyone living in Germany and covers doctor visits, pharmaceutical drugs, therapeutic treatments, illness costs, and pregnancy-related expenses.

Contributions total around 14.6% of your salary, split equally between you and your employer. You have the freedom to choose your health insurance provider from various statutory options, each offering slightly different additional services.

2. Statutory Nursing Care Insurance (Pflegeversicherung)

This insurance provides basic income support if you become permanently dependent on care due to illness or old age. Contributions are typically 3.4% to 4% of salary (with potential reductions for parents), shared between employee and employer, though the employer’s share may be capped.

This system ensures that long-term care needs don’t create financial hardship for individuals or families.

3. Statutory Pension Insurance (Rentenversicherung)

The pension system allows employees to receive retirement benefits based on their former income and years worked in Germany. Contributions total around 18.7% of salary, split between employee and employer.

Key features include:

• Retirement age is transitioning from 65 to 67
• You typically need at least 5 years of contributions to receive benefits
• Average pension payments are around €1,300 per month
• Pension entitlements from EU/EEA/Switzerland countries may be transferable if you worked there for at least a year

Self-employed individuals can voluntarily opt into the statutory pension scheme.

4. Statutory Accident Insurance (Unfallversicherung)

This insurance covers medical treatment and workplace reintegration after workplace accidents or occupational illnesses. It’s funded entirely by your employer, providing coverage for workplace incidents, work-related illnesses, and injuries during commuting.

The insurance can also assist with job training and rehabilitation to help you return to work after an accident.

5. Statutory Unemployment Insurance (Arbeitslosenversicherung)

Unemployment insurance provides income security if you lose your job, with contributions totaling around 2.6% to 3% of salary, split between employee and employer.

To receive benefits, you typically must have been insured for at least one year during the previous two years and actively seek employment.

Social Security Card and Number

What is the Sozialversicherungsausweis?

As an employee subject to social security contributions, you’ll receive a social security card (Sozialversicherungsausweis) containing your unique social security number. This card proves your participation in the statutory social insurance system and serves as important documentation throughout your working life in Germany.

Getting Your Social Security Number

Your social security number (Sozialversicherungsnummer or Rentenversicherungsnummer) is issued by the German Pension Insurance (Deutsche Rentenversicherung – DRV) and remains valid for life, even when changing employers.

If you have public health insurance and register your address, you’ll typically receive the card by post automatically. Those with private health insurance may need to contact the DRV directly or ask their employer for assistance.

You can find your social security number on your social security card, yearly pension office letters, or payslips (marked as “SVNR,” “RV,” or “RNVR”).

What to Do If You Lose Your Card

If you lose your social security card, you can request a replacement directly from the German Pension Insurance. The process is straightforward, and you’ll receive a new card with the same number.

Benefits and Allowances

Unemployment Benefits (Arbeitslosengeld I & II)

Germany provides two types of unemployment benefits:

Arbeitslosengeld I is available for 6 months to 2 years if you’ve paid contributions for at least one year in the past five and are actively seeking work. The benefit equals 60% of your previous salary (67% if you have children) and is administered by the Federal Employment Agency.

Arbeitslosengeld II provides basic subsistence support for those not eligible for Arbeitslosengeld I, ensuring no one falls below a minimum living standard.

Maternity Benefit (Mutterschaftsgeld)

Mothers with statutory health insurance automatically qualify for maternity benefit, allowing them to claim their full salary for 12 weeks around childbirth. This benefit ensures financial security during this important life transition.

Parental Allowance (Elterngeld)

Parents can receive 67% of their wages (up to €1,800 per month) for 1 to 14 months after their child’s birth. This allowance can be shared between parents, providing flexibility for families to manage childcare responsibilities.

Child Benefits (Kindergeld)

Germany provides monthly child benefits of approximately €190-€221 per child (depending on birth order) to support parents with child-rearing costs. This benefit continues until the child reaches adulthood or completes education.

Housing Benefit (Wohngeld)

Housing benefit provides financial support for rent or mortgage payments for those with lower incomes, helping ensure everyone can afford basic housing needs.

Sickness and Child Sickness Benefits

Sickness Benefit (Krankengeld) provides income if you’re unable to work due to illness. Your employer typically covers the first six weeks, after which your health insurance provider continues payment.

Child Sickness Benefit (Kinderkrankengeld) gives you the legal right to take time off work when your child is ill, with partial income replacement if your employer doesn’t continue salary payments.

Filing a Tax Return in Germany

When You Must File a Return

Filing a tax return is compulsory in several situations:

• Working for multiple employers
• Having additional income besides wages
• Receiving certain benefits (unemployment or sick pay)
• Having specific tax bracket combinations
• Meeting other criteria specified by tax law

The deadline for compulsory tax returns is usually July 31st of the following year (or later if using a tax advisor).

Voluntary Tax Returns: Why It’s Often Worthwhile

Most employees can file tax returns voluntarily, and since most people receive refunds from the state, it’s often beneficial even when not required. You have four years to file a voluntary tax return, giving you flexibility in timing.

Common reasons for refunds include overpaid taxes due to tax bracket calculations, deductible expenses, or changed circumstances during the year.

How to File: ELSTER and Other Tools

You can complete your tax return using:

• ELSTER: The official online tax software provided by German tax authorities
  • ELSTER website (English translation is automated!)
• Tax preparation software: Various commercial programs available
• Tax consultants: Professional assistance for complex situations
• Income tax assistance associations: Non-profit organizations offering affordable help

Special Case: Seconded Employees in Germany

Tax and Social Security Implications for Seconded Workers

Employees seconded to Germany by their home country employer typically remain on their home country payroll and continue paying taxes and social security contributions there. They generally do not need to pay German taxes or make German social security contributions.

This arrangement usually applies for secondments up to two years, potentially extending to five years. Seconded employees should obtain private health insurance since they’re not covered by German statutory insurance schemes.

This special status recognizes the temporary nature of secondments while ensuring workers aren’t double-taxed or face gaps in social security coverage.

• See also: Opening a German Bank Account