Paying taxes is an obligation for all citizens who live and work in a country. In the following you will find out under which conditions and to what extent you pay taxes or possibly will receive money back from the State as part of your income tax return.
1. Tax liability
You have to pay tax on your income in Germany, if you
- have a residence in Germany or
- usually stay more than six months (183 days) per calendar year, in Germany.
The tax liability is regarding your total income. That means income from different types of income (e.g. wages, pensions and income from rentals). That also means income that you earn within and outside Germany (world income).
If you are an employee, your income will primarily be wages. The income tax is automatically deducted from your wages (so-called wages tax). In addition, a solidarity surcharge and, if you are a member of a religious community that collects such, church tax will be deducted. Your employer transfers these amounts directly to the Tax Office responsible. The employer also pays your contributions to the statutory Social security (unemployment, health, long-term care, pension and accident insurance). How much is deducted from your wages per month can be seen in your pay slip, which you receive from your employer.
Please note: If you have taken out private insurance, such as private health insurance, you have to pay the contributions for this insurance yourself.
2. The amount of income tax
The amount of income tax depends on the amount of your annual income. This is all your income for the calendar year minus certain amounts that are tax-free. There is a basic personal allowance on which you pay no tax. In 2020, this is € 9,408 for single persons and € 18,816 for married couples and registered partners. In addition, a tax-exempt lump sum employee fee of € 1000 per year applies to employees. If your annual income is above these or other tax-free amounts, you will pay income tax on the excess. The tax rate starts at 14% and increases as income increases. The maximum tax rate is 45%.
If you have income from investments from your bank in Germany, e.g. if you receive interest, taxes will also be charged on it. These are withheld directly by the bank and are paid to the Tax Office by way of the withholding tax. A uniform tax rate of 25% applies to the withholding tax.
Please note: If your interest does not exceed € 801 (or € 1,602 for a jointly assessed spouse or registered partner), you do not have to pay tax on it. Remember to apply to your bank for exemption from tax (exemption application).
Families and single parents receive certain tax advantages. By dividing them into the corresponding Filing status, these advantages are already taken into account in the monthly deductions.
You can determine your expected tax burden with the wage and income tax calculator of the Federal Ministry of Finance.
3. Income tax return
After a calendar year you can submit an income tax return so that the Tax Office can check whether you have paid too much or too little tax. It is often worth filing a tax return for employees. It may be possible for you to claim deductions. Find more information on this in the FAQs.
Please note: In some cases you are obliged to submit a tax return, for example if you had additional income in addition to your wages, received unemployment benefit, sick pay or short-time work allowance, had several employment relationships or had certain filing status combinations. You must then submit your tax return by 31 July of the following calendar year. You may have to pay additional taxes.
If you are not required to file a tax return, you have 4 years to do so voluntarily.
The best way to declare your taxes is online via the Internet portal Elster. Registration is required to use Elster. You can also fill out the tax return as a form. In both cases you have to send the tax return to the Tax Office of the district in which you live. Your Tax Office provides regular office hours for general questions about tax returns - whether in person or by telephone.
If you need further assistance in completing the tax return, you can contact an accountant or lawyer. Costs are incurred for this. Income tax assistance associations can also help with tax issues. They are self-help organisations run by employees for employees and are usually more cost-effective than advice from accountants or lawyers.
You probably spend some of your income on work-related expenses, provident expenses or certain other obligations. As these portions of your income are not freely at your disposal, they are not supposed to be taxed. Certain expenses can therefore be deducted when calculating your taxes. This reduces your taxable income and the amount you have to pay in tax. The most important deductible amounts are:
Income-related expenses (Werbungskosten): These are expenses which are closely related to your work. They include, for example, job application expenses, expenses for work clothing, expenses for work equipment (e.g. tools, specialist literature, office supplies), trade union fees, expenses for travel between your workplace (first place of work) and your home in the form of the allowance for commuters (Entfernungspauschale) or higher expenses for public transport if actually incurred, and the costs of maintaining dual households.
Tip: Income-related expenses of 1000 euros per year are automatically taken into account for every employee. If your income-related expenses do not exceed this amount, you do not need to individually specify and provide evidence of them. If your expenses are greater than 1000 euros per year, for example if you require a second home for professional reasons (known as “dual households” (doppelte Haushaltsführung)) because you live and work in different locations, you can state this in your tax return.
- Special expenses: These include, for example, provident expenses (Vorsorgeaufwendungen), i.e. the premiums on provident insurance policies, as well as spending on supplementary pension plans and donations.
- Allowances for people with one or more children: The tax-free child allowance (Kinderfreibetrag) and the allowance for the child’s childcare, education or vocational training needs.
- Extraordinary financial burdens: These are unusually high expenses necessarily incurred by the taxpayer, i.e. which the taxpayer is unable to avoid. For example, particularly high medical expenses or expenses paid by the taxpayer to support a dependant and for the dependant’s vocational training.
In Germany, there are 6 filing statuses for the deduction of income tax from wages (wages tax). These filing statuses only apply to employees. The filing status determines how much is withheld from your wages in the form of wages tax each month and remitted by your employer to the Tax Office (Finanzamt). The wages-tax deduction is an advance payment towards your annual income tax. The amount deducted is intended to match the amount of income tax you have to pay for that year as accurately as possible, to minimise the need to pay additional taxes and the need for tax refunds. This is achieved by giving employees a filing status. The filing statuses reflect various types of marital status and distributions of income between married couples or civil partners.
If you no longer have the documents concerning a tax identification number (Steuer-Identifikationsnummer) which was issued to you in the past, you can contact the Federal Central Tax Office (Bundeszentralamt für Steuern). You should also do this if you were issued a tax identification number during a previous stay in Germany, as it remains valid throughout your lifetime and does not change.
On the Federal Central Tax Office’s website, you can arrange for your tax identification number to be sent to you again. You can also contact the Office by telephone on +49 (0)228 406 1240 from Monday to Friday from 8:00 a.m. to 4:00 p.m., or enquire in writing. For all enquiries, please give your full name and complete address, as well as your date and place of birth.
If you are not registered in Germany but nonetheless pay taxes here, your tax identification number is issued when your income tax return is processed. You will receive written notification of it a short time later.
Cross-border workers are employees who live near a country’s border (in a specifically defined border zone), but are employed (not self-employed) in a neighbouring country and routinely cross the border to their workplace in the morning and return home in the evening. Special international agreements apply to cross-border workers.
If you do not have a residence or habitual abode in Germany and are only working here for up to 6 months, for example as a seasonal worker or posted worker, you are normally subject to limited tax liability on your income. This means that you only need to pay tax in Germany on certain types of income which you receive in Germany. This includes earnings from non-self-employed work, such as your wages for work which is carried out or commercially exploited in Germany. If you are employed by a domestic employer, whose management, for example, is in Germany, or by a foreign temporary work agency, your employer withholds the payable wages tax from your wages and remits it to the Tax Office (Finanzamt). The tax is then deemed to have been paid. If the wages are your sole source of income, you normally do not need to file a tax return. As a citizen of an EU country, Iceland, Liechtenstein or Norway who is a resident of one of these countries, you also have the option of applying for assessment for income tax (Veranlagung zur Einkommensteuer). In this case, you must file an income tax return which you have personally signed. This is a worthwhile option if, for example, you would like to claim deductible amounts or if the German right to tax is limited by a double taxation agreement, i.e. if your wages in Germany should not be taxed at all, or only to a limited extent. You can find out on the website of the Federal Finance Ministry whether Germany has concluded a double taxation agreement (Doppelbesteuerungsabkommen) with your country of residence. It publishes a constantly updated list of the double taxation agreements and other tax-related agreements, as well as an annual list of negotiations on agreements. In addition, you can also obtain information on the treatment of wages for tax purposes under double taxation agreements on the following webpage.
From the time when you cease to have your residence or habitual abode in Germany, you are only liable to pay tax in Germany on income received within Germany. This includes, for example, wages for work carried out in Germany and income from renting out properties located in Germany. If you are required to file a tax return or if you do so voluntarily, these sources of income must also be declared.
There are 6 filing statuses in Germany for income tax on wages (wages tax). Your filing status depends in particular on your marital status and, if you are married or in a civil partnership, on the distribution of the two incomes. In some cases, it is possible to choose between different filing statuses. A filing status fits best if it most accurately reflects your personal circumstances (marital status and distribution of income). Here is an overview:
Filing status I …
… applies to single persons, i.e. unmarried, separated, divorced or widowed employees.
Filing status II …
… applies to single persons with at least one child in their household. If you choose filing status II, you receive tax relief amounting to 1908 euros per year (plus 240 euros for every further child as a tax-free allowance). You only receive filing status II if you meet the statutory conditions and submit an application.
Filing status III …
… can only be chosen by employees who are married or in a civil partnership, who are not permanently separated, and who are subject to unlimited income tax liability. This filing status is worthwhile for you if your spouse or civil partner does not work or earns much less than you. If you choose filing status III and your spouse or civil partner is also an employee, he or she is given filing status V.
Filing status IV …
… is the standard status for employees who are married or in a civil partnership. If you and your spouse or civil partner earn roughly the same amount, this is the appropriate filing status for you.
Filing status V …
… is the counterpart of filing status III. This is the filing status given to an employee whose spouse or civil partner has filing status III.
Filing status VI …
… applies to employees who have multiple jobs at once and receive wages from multiple employers. Your wages from your primary job are taxed according to the appropriate status from filing statuses I to V, while wages from another job are taxed according to filing status VI.
If you are self-employed, run a business or operate an agricultural and forestry holding, tax is not automatically deducted from your income. The tax is subsequently assessed for the entire year on the basis of the tax return you file. You are required to file a tax return once your income exceeds certain levels. To avoid a large tax bill, you should make advance payments to the Tax Office (Finanzamt) during the year which reflect your estimated amount of annual tax. You can obtain information on both of these issues from your Tax Office.
As soon as you register your place of residence in Germany with the registration office of your city or municipality for the first time, you will automatically be assigned your tax identification number. You will be given the identification number in writing a short time later.
If you have already lived in Germany since 01.07.2007 and have been registered at a registration office, then you have already received a tax identification number. This remains unchanged for life and must be reused.
If you have any questions about the tax identification number, you can call the Federal Central Tax Office (Tel. +49 228 406-1240, Mon-Fri from 8:00-16:00).