Before deciding on a job in Germany, it is important to become familiar with the local income tax system, as it has an impact on net income and the potential for a tax refund. In this article, we will take a closer look at the calculation of income tax and explain what you need to know to determine the correct income tax rate.
Who will pay income tax in 2025?
Every company in Germany is required to calculate income tax for its employees and remit it to the tax office. The amount of income tax depends on various factors, including the employee’s income and tax class.
Currently, the basic allowance in Germany is 12,084 euros for singles and 23,168 euros for jointly assessed couples. This means that income below this amount is not taxed. If you earn more, it will be taxed accordingly, and if too much tax has been paid, there will be a refund.
In addition to income tax, various other deductions are withheld from the gross salary. These include social security contributions (health, nursing care, pension, and unemployment insurance), church tax, and, if applicable, the solidarity surcharge.
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Industry-specific levies
In certain industries, additional levies are added, which are, however, tax deductible. Employees in the construction industry, roofing trade, scaffolding, and landscaping, for example, pay the winter construction levy, which is between 1.6% and 2% of the gross salary. This levy serves as a safeguard for low-income winter months and can be claimed as work-related expenses in the tax return.
Is there an income tax table?
Until 2004, there were official income tax tables in Germany. Today, there are only approximate tables for income tax, which do not accurately reflect the exact tax burden. To determine the exact tax rate, many factors must be considered.
Anyone who wants precise information about their monthly or annual income tax and the solidarity surcharge can perform calculations. The Federal Ministry of Finance (BMF) offers a special calculator for this purpose, which can be used to determine the current income and income tax payable.
Is income tax the same as payroll tax?
Income tax refers exclusively to income from non-self-employed work, while payroll tax includes all income for the year, such as investments, rental income, etc.
When a person submits a tax return to the tax office after the calendar year, the paid payroll tax is deducted from the final assessed income tax. If the tax liability exceeds the advance payments of payroll tax, the difference must be paid. If the final income tax is lower than the advance payment, a refund of the overpaid amount occurs.
The current income tax rate in Germany – Where does it come from and how does it change?
The current income tax rate in Germany is not fixed. It is regularly updated based on decisions by the federal government and the country’s economic situation. The updating process can be complex and depends on many factors, such as inflation, economic growth, or changes in the labor market.
Not only income affects the tax rate. Germany has a progressive tax system, which means that as income increases, the percentage of payroll tax increases. As a result, people with lower incomes pay less tax, while those with higher incomes pay more.
Income tax rate and tax class
The tax obligation depends on the respective tax class to which one is assigned. These classes are determined annually based on the tax returns submitted by taxpayers:
- Class I – for singles, divorced, widowed, unless they qualify for Class II or III.
- Class II – for single parents with at least one child entitled to tax benefits or child benefits. Widowed qualify here only if they were not previously in Class III.
- Class III – includes married couples and those who have lost their spouse during the calendar year.
- Class IV – for married employees. For couples with similar income, the combination IV/V is best, but for larger income differences (e.g., 40/60), the combination III/V is better.
- Class V – applied to one of the spouses when the other has Class III.
- Class VI – for people with income from multiple jobs, meaning they have more than one tax class.
In determining tax amounts, we must consider the individual’s social and life-related situation. For example, families with small children should pay less than singles. There are also special exemptions for families with children exempt from income tax. Once assigned to a specific tax class, all available exemptions are automatically considered.
Income tax rate in tax class 1 – how high is it?
In Germany, employees are often assigned to tax class 1. The lowest income tax rate is currently 14% and applies when the taxable income exceeds the basic allowance threshold. With increasing salary, this rate proportionally increases up to 42% – this is the case when income exceeds 66,761 euros.
The maximum income tax rate in Germany was introduced to ensure that the wealthiest citizens make a fair contribution to the state budget. In practice, this means there is an income limit beyond which everyone pays the same maximum tax rate.
As income tax is a linear progressive tax burden, the rate increases with every additional euro earned. The highest tax rate in Germany is 42% and is reached at an income of 66,761 euros. For incomes over 277,826 euros, the so-called wealthy tax rate of 45% applies.
To find out your income tax rate for the year 2025, it is advisable to consult a professional. However, we recommend our tax accounting app Taxando – a practical program with which you can handle all formalities related to the German tax office.
Maciej Szewczyk
He gained experience as a consultant on IT projects for many international companies. In 2017, he founded the startup taxando GmbH, where he developed the innovative tax app Taxando, which simplifies the filing of annual tax returns.
Maciej Szewczyk combines technological expertise with in-depth knowledge of tax regulations, making him an expert in his field. In his private life, he is a happy husband and father and lives with his family in Berlin.
