Salary and Taxes in Germany

The gross salary is the salary specified in the employment contract. The net salary is the salary actually deposited into the bank account after the deduction of taxes and social security contributions. Every employee in Germany must pay taxes and social security contributions above a certain salary threshold. Further information on taxes and social security contributions, as well as an example of how gross and net salaries are calculated, can be found on the Make it in Germany website.

Salary levels vary depending on the industry, job, qualifications and professional experience – and also depending on where in Germany you work. When you apply for a job, the potential employer will often ask about your salary expectations. Your salary expectations should be realistic and match your qualifications – neither too high nor too low. It is a good idea to find out in advance what salary you can expect for a comparable position.

The most important taxes and social security contributions deducted from your gross salary are income tax and social security contributions. You can see how much is deducted from your monthly payslip.

The largest tax is income tax. The amount of income tax depends on your gross salary and your tax bracket. The tax bracket you are assigned to depends on several factors – for example, whether you are married or have children. As a general rule, the higher your gross salary, the higher the tax rate – and thus the income tax you have to pay. Your employer transfers the income tax to the tax office for you every month. This means you do not have to worry about it yourself.

When registering your place of residence, you must state your religious affiliation if you are a member of a church. If so, you pay an additional eight to nine per cent of your income tax as church tax. Here, too, your employer is responsible for transferring the money to the tax office.

In Germany, social security ensures that you are financially secure in the event of an accident, illness, unemployment and old age. Once your salary reaches a certain level, you are required to pay social security contributions. This means that you must be a member of certain statutory insurance schemes and automatically pay contributions (social security contributions) into them. As a rule, these are:

• Statutory health insurance: This pays for visits to the doctor and for many medicines and therapies.
• Statutory nursing care insurance: This provides basic financial security if you are permanently dependent on care, for example due to illness or old age. 
• Statutory pension insurance: This pays employees a monthly pension when they reach retirement age. The amount of the pension depends on the number of years of contributions and the amount of contributions paid. 
• Statutory unemployment insurance: This ensures that your living expenses are covered if you unexpectedly become unemployed. 
• Statutory accident insurance: This covers the costs of medical treatment and reintegration into working life after an accident at work or in the event of occupational illness.

All areas of social security automatically cover employees. There are no different providers. Health insurance is a special case. Here, you can choose your health insurance provider yourself. 

You pay a fixed percentage of your gross salary each month for the social insurance schemes mentioned above. Your employer also pays a fixed amount for you. The money is deducted directly from your gross income and paid to the insurance companies by your employer, along with their share. You do not have to worry about this yourself. Self-employed persons are an exception. They pay the social insurance contributions in full themselves.

If you work in Germany and have your permanent residence here, you are subject to unlimited income tax liability. This means that you must pay tax on your income. The more you earn, the higher the tax rate. As soon as you register your residence in Germany, you will receive a tax identification number (abbreviated to Steuer-ID). Your tax ID is unique and valid for life. 

In some cases, you will need to submit an income tax return. Even if you are not required to submit a tax return, it may be worthwhile to do so voluntarily: you will often receive a partial refund of the tax you have paid. There are various expenses that you can deduct from your taxes. To file your tax return, you will need an income tax certificate from your employer. 

It is possible to file your tax return yourself. To do so, you can use the forms provided by the tax office or the ELSTER electronic programme. There are also digital tools available to help you with your tax return. If you have any questions about your income tax return, you can also contact an income tax assistance association or hire a tax advisor.

Germany has concluded double taxation agreements with many countries to avoid double taxation of employees in Germany and their home countries. The taxes you have to pay are then – roughly speaking – divided between Germany and your home country. A list of countries with which such agreements are in effect can be found on the website of the Federal Ministry of Finance.