German income tax

The most important tax for jobholders in Germany is

income tax. You pay income tax on all your income for one
calendar year – in your case, this will probably correspond
primarily to your income from your work as an employee. If
you are employed by a company, you do not even have to
trouble yourself with the question of income tax at first, as
your employer will automatically deduct the income tax
from your gross wage/salary in the form of wage tax
(Lohnsteuer) and transfer it to the tax office on your
behalf. Your employer also transfers the “solidarity
surcharge” (Solidaritätszuschlag) and – if you are a
member of a religious community which levies it – the
“church tax” (Kirchensteuer) as well. Your pension, health,
nursing and unemployment insurance are also deducted
from your wages and paid by your employer. You can see
how much your employer transfers to your account and
how much your net salary amounts to every month from
your wage or salary slip.
How much income tax you pay
In Germany, everyone’s earnings are subject to a basic
tax allowance. Up to this amount, your taxable income is
not subject to tax. In 2020, this basic tax allowance is
9,408 euros if you are unmarried and not in a civil
partnership. For couples who are married or in a civil
partnership is 18,816. If your taxable income is higher than
these amounts, you will pay income tax on it. The taxation
rates vary from 14 percent to 42 percent. The rule is: the
higher your taxable income, the higher the rate of taxation.
However, the top tax rate of 42 percent is only payable on
incomes of more than 250,731 euros a year if you are
unmarried and not in a civil partnership. For couples who
are married or in a civil partnership, the maximum tax rate
is applicable for incomes of over 501,462 euros.
The first €9,000 (or €18,000 for married couples with a joint return)
you earn each year in Germany is tax-free.

Any amount earned above €9,000 is subject to income tax.

Interests, dividends and capital gains on stocks are subject to a flat

tax of 25% plus a solidarity charge.

Some types of income are tax exempt but are used to determine the
tax rate, such as unemployment benefits, maternity leave payments,
and certain income taxed in other countries due to double taxation
treaties.

Your liability for German individual income tax is also determined by

your residency status.
Regardless of whether you are a resident or non-resident for tax
purposes, you will only be taxed on your German–sourced income.
Your worldwide income will be used to determine your tax rate

So  how do I know if I'm resident or non-resident for

tax purposes?
Generally, you'll be considered a resident of Germany if you have a
‘domicile’ there or spend more than 6 consecutive months in Germany
(habitual place of abode).

A domicile is a home or dwelling owned by or rented to the taxpayer

who has full control over the property. A habitual place of abode is
established if you're physically present in Germany on a long-term
basis (more than 6 months).

So in other words, you'll be considered non-resident if you spend less

than 6 consecutive months in Germany.

Non-residents (limited income tax liability) can be considered and

taxed as German residents (unlimited tax liability) if:

•           At least 90% of their total worldwide income in a

calendar year is subject to German income tax

•           OR their income from outside Germany in a calendar year

does not exceed €8,130 for 2013, 8,354 for 2014, €8,472 for 2015 and
€8,652 for 2016 onwards. These amounts are to be reduced where
necessary and appropriate in light of the conditions in the taxpayer’s
country of residence.

Extended business travellers are likely to be considered non-residents

of Germany for tax purposes unless they stay in the country for more
than 6 months in a row (brief interruptions like weekend trips home
are disregarded). 

German-sourced employment income is generally treated as German-

sourced where you perform services while physically present in
Germany.

Tax Rates
Income tax in Germany is progressive, starting at 1% and rising
incrementally to 42% or for very high incomes, 45%.

The tax rate of 42% applies to taxable income above €54,950.

For taxable income above €260,533, a 45% tax is applicable

As well as income tax, everyone has to pay solidarity

tax (Solidaritätszuschlag or "Soli"), which is capped at 5.5% of
income tax. This was introduced to improve the economic situation
and infrastructure in the 5 'new' eastern states of Germany.

This surcharge is imposed as a percentage on all individual income

taxes.

No solidarity surcharge is levied on the first €972 (€1,944 for married

couples) annual income tax.

For example, you have an annual taxable income of €10,000. Your

solidarity surcharge will be €550. As a result, your total tax bill will be:
€10,550.

TAXABLE INCOME MARGINAL RATE IN 2018

Up to €9,000 0%

€9,001 - €13,996  14% rising progressively to 24%

   

€13,997 - €54,949 24% rising progressively to 42%

Over €54 950 42 %

From $260,533 45 %

RATES

 
Note: These rates are before solidarity tax is deducted.

Also, various deductions are allowed that may reduce the amount of
tax you pay on your salary.

There are no local or state income taxes levied in Germany.