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TAXES

EXPLAINED: How to understand your German payslip

Everyone looks forward to getting their salary each month - but if you're employed in Germany, you may be wondering why half of it appears to be missing. Here's how to understand your payslip and what tax deductions you can expect.

Money lies on top of a German payslip.
Money lies on top of a German payslip. Photo: picture alliance / dpa | Arno Burgi

If you’re an employee in a German company or organisation, it’s very likely that you’ll receive your wages once a month – usually around the end of the month but your bosses should tell you the exact date of payment when you start working there. 

You should also receive a payslip (die Gehaltsabrechnung or Lohnabrechnung) that details how much will be going into your bank. 

Your name, address and tax identification number (Steuer ID) should be on the slip. You’ll also find your Krankenkasse (health insurance organisation) and your Sozialversicherungsnummer  or SV-Nummer (social security number) on it, as well as the month you’re being paid for. 

You may also see some other information on there that’s used to identify you, but isn’t too important for you to take note of. The first is the Arbeitnehmer-Nr. or Personal-Nr., which is your employee reference number within the company, and the second is Eintritt or Eintrittsdatum, which should refer to your starting date at the company. 

The information to pay most attention to on your payslip is your salary information and any deductions. With so many different types of tax and insurance to pay, an average worker in Germany will see about 40 percent of their salary deducted – though there are some good reasons for this, which we’ll go into below. 

Here’s a breakdown of what to expect:

der Betrag / die Brutto Bezüge: 

This section refers to your gross salary before tax and other deductions. Here, you’ll see the magical amount you were promised when you first took on your job. Be prepared to see it slowly but surely evaporate due to the contributions below.

die Lohnsteuer 

This is essentially an advance payment of your Einkommensteuer (income tax) each month. It’s collected at source and paid directly to the Finanzamt (tax office) by an employer.

Of course, Lohnsteuer doesn’t take into account any work-related expenses or other tax deductions you may have, which is why it can be worth doing a tax return at the end of the year and why doing so often leads to a rebate.

Since Germany has a progressive tax system, the amount you pay in income tax is linked to how much you earn. Basically, the higher you earn the more you pay.

The good news is that everyone is given a tax-free allowance, which you may see detailed on your payslip under Freibetrag or Steuerfreibezug. As of 2022, this is €9,984 for individuals and €19,968 for couples who choose to submit a joint income-tax assessment.

For everything over that, you’ll pay between 14 and 42 percent income tax on any earnings up to €277,826. All earnings above this whopping figure will be taxed at 45 percent. 

READ ALSO: Everything you need to know about your German tax return in 2022

die Rentenversicherung

Pension insurance amounts to a massive 18.6 percent of your salary, but you don’t have to pay this all yourself. Your employer pays half and you pay half (9.3 percent each).

This is due to remain the same in 2022, though the government does plan to increase contributions in stages to reach 20 percent of earnings by 2025. That means 10 percent paid by you, and 10 percent paid by your boss.

To try and cope with changing demographics and an ageing population, the traffic-light coalition is also trying to find new ways to make the money stretch further.

Since ever fewer people are paying into the pot and every more are drawing out of it, the government wants to invest some of the money into lower-risk stocks.

That means that two percent of your contributions will be put into an equity pension pot, while the rest will be put in the usual pay-as-you-go pension. 

An elderly couple sit together on a bench in Kiel

An elderly couple sit together on a bench in Kiel. Photo: picture alliance/dpa | Marcus Brandt

READ ALSO: How to maximize your German pension – even if you plan to retire elsewhere

If you are working full-time in Germany, even on a temporary basis, pension contributions tend to be non-negotiable and are required by law.

die Krankenversicherung (KV)

This is the amount you pay for your health insurance each month.

You’re likely have chosen a public health provider such as TK or AOK when you moved to Germany or before taking your first job.

The general contribution rate for these public insurance contracts is 14.6 percent of your wages, with the employer and employee each paying half (so 7.3 percent each). If your contract doesn’t entitle you to sick pay, the contribution will be set at 14 percent.  

Public insurance companies can also choose to set an additional contribution of up to 2.5 percent, which they may justify with the offer of additional services or better coverage. 

If you are privately insured, the system works slightly differently. 

Your monthly premiums will be calculated as a flat fee according to your tariff rather than a percentage of your wages. This can often make it cheaper for high earners in the short-term – though costs can shoot up in the event of illness or as you get older. 

READ ALSO: Reader question: How can I change my German health insurance provider?

die Pflegeversicherung

As another way of putting money aside for a rainy day, you’ll also see a mention of ‘Pflegeversicherung’, or long-term care insurance, on your payslip. This amounts to 3.05 percent of your gross income if you have children, or 3.40 percent of your income if you don’t. 

Once again, the contributions for this are split between you and your employer, so in reality half of this amount comes out of your salary. 

Long-term care insurance means in theory that should you require care at any point in your life, such as assistance with shopping or live-in care in your old age, you should be able to get it.

An elderly woman waits for a lift in Berlin

An elderly woman waits for a lift in Berlin. Photo: picture alliance / Britta Pedersen/dpa-Zentralbild/dpa | Britta Pedersen

die Arbeitslosenversicherung

You pay unemployment insurance in case you lose your job. Contributions are currently at 2.4 percent, of which your employer pays half.

This gives you the right to claim 60 percent of your previous salary from the job centre for a year while you look for another job. This is known as Arbeitlosengeld I.

The only requirement for receiving this money is that you have been in a job which is subject to compulsory insurance payments for 12 of the last 24 months. There are also allowances made if you have had to take time off work to care for a newborn child or because you were sick.

If you are still unemployed after a year you move into Arbeitslosengeld II, known as Hartz IV.

READ ALSO: 10 golden rules to know if you lose your job in Germany

die Kirchensteuer

Church tax, or Kirchensteuer, is a tax that religious groups charge their members to finance their institution, staff and the upkeep of buildings like old churches. When you register at your first address in Germany, you’ll be asked to state your religion on the Anmeldeformular. Your local tax authority collects this tax and passes it onto the church while retaining a service fee.

How much church tax you pay depends on your income and where you live. In Bavaria and Baden-Württemberg the rate is eight percent of income tax, while in other states it is nine percent.

The good thing is that this tax is voluntary so you don’t have to pay it if you’re not religious, though there is anecdotal evidence of the church trying to find out whether or not an “atheist” foreigner has in fact been baptised elsewhere, which can lead to issues if you were once a practicing church-goer but aren’t anymore.

It’s worth also noting that opting out of the tax – and, by extension, affiliation with the church – may have ramifications for potential religious weddings, which you can find out more about below. 

READ ALSO: EXPLAINED: The rules foreigners should know on German church weddings

Churchgoers in North Rhine-Westphalia

People take their seats at a service at St. Peter’s church in Recklinghausen, North Rhine-Westphalia. Photo: picture alliance/dpa | Caroline Seidel

der Solidaritätszuschlag

The ‘Soli’ or ‘solidarity charge’ was introduced as a special ‘tax’ in 1991 mainly for infrastructure and projects in eastern Germany after German reunification in 1990.

It used to be paid by pretty much everyone, but over the past few years this has been changed and now only the top 3.5 percent of earners are still expected to pay it. 

That means it only applies to you if you’re lucky enough to be earning more than €96,800 as an individual or more than €193,600 as a married couple. In this case, it’s calculated rather confusingly at 5.5 percent of your Lohnsteuer, so someone who pays €3,000 a month in income tax would pay an additional €165 as a solidarity charge. 

Here are some useful words or abbreviations that might appear on your payslip:

der Auszahlungsbetrag – the total amount you receive

Brutto – the German word for ‘gross’, i.e. the amount prior to calculation and deduction of tax.

Netto – the amount of wages you receive after tax.

Netto Verdienst – net or total earnings

SV-AG Anteil or Sozialversicherung Arbeitgeberanteil – employer’s contribution to social security

Steuerrechtliche Abzüge – tax deductions

die Betriebsrente – company pension

KK % – the contribution rate for your Krankenkasse (health insurance provider)

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TAXES

Do foreigners in Germany owe tax on money that is inherited from overseas?

If you received an inheritance worth at least €20,000 in 2023, there's a good chance that it will affect your taxes this year. Here's how German inheritance tax is applied to foreigners and foreign assets.

Do foreigners in Germany owe tax on money that is inherited from overseas?

Inheritance tax (Erbschaftssteuer) has been collected in Germany since 1906, and it also applies to foreign residents.

This tax is levied on assets, like money or real estate, that are received from a deceased person. 

Germany’s current inheritance tax law has been in force since 1955, and is applied to the total value of all assets that are passed on, excluding diaries, clothing and furniture. 

It also comes with relatively high allowances for close relatives such as spouses and children.

Does inheritance tax apply to foreign assets?

Long-term and permanent residents in Germany will likely be subject to the tax, even when the inheritance is coming from abroad.

Put simply, German inheritance tax is applied when either the deceased or the heir legally resides in Germany at the time that the inheritance is claimed. 

Habitual residence is generally established when one has lived in Germany for six-months, but may be applied sooner in some cases. So the tax does apply to most long-term foreign residents regardless of their specific visa or residency status.

READ ALSO: I just got married in Germany. How does this affect my taxes?

Additionally, German nationals are still considered residents for up to five years after moving abroad.

So an American resident receiving an inheritance from their relative who lived in Germany, for example, may be taxed, and conversely a German resident receiving inheritance from their American relative would also be taxed.

In both of these cases, your inheritance is subject to ‘unlimited tax liability’ – meaning that the entire value of the inheritance is taxed.

If you and the deceased are both legally domiciled abroad, then you may still be subject to ‘limited tax liability’ – meaning that tax is only owed for parts of the inheritance that are located in Germany, such as property or a savings account held in a German bank.

How much inheritance can you receive before it’s taxed?

The amount of tax owed depends on the value of the inheritance and also on one’s relation to the deceased. 

Inheritances are also granted significant allowances in Germany. Allowances refer to the amount of money you can receive without having to pay any tax.

Spouses and registered partners, for example, pay no tax on the first €500,000 worth of inherited assets. Children, step-children and grandchildren whose parents have already passed away are granted a €400,000 allowance, whereas grandchildren with living parents get a €200,000 allowance. Great-grandchildren, parents and grandparents get a €100,000 allowance. All other relatives or unrelated heirs receive a €20,000 allowance. 

Regardless of allowances, all inheritances worth €20,000 or more need to be declared.

Additional allowances apply to specific situations, such as a special pension allowance for spouses or children who don’t receive widow or orphan pensions. These currently amount to €256,000 for spouses and civil partners, and between €10,300 and €52,000 for children, depending on their age.

Immediate family who cared for the deceased before death can apply for up to €20,000 in care allowance.

Additionally, there is a lump sum allowance of €10,300 for “estate liabilities”, such as funeral costs, gravestone, and grave maintenance fees.

Will I be doubled taxed by Germany and my home country?

Germany has Double Taxation Agreements that cover inheritance and estate taxes with the USA, Greece, France, Sweden, Denmark and Switzerland.

In some cases these agreements can override German domestic law, and will likely affect how much tax you owe.

Generally these agreements allow tax payers to avoid double taxation by offsetting the foreign tax against the German tax or vice versa. For example, if you have already paid an inheritance tax on assets coming from the USA, then the amount you paid in US taxes may be taken off the amount that would be owed in Germany.

In this case it would be advisable to seek consultation from a tax professional who is familiar with German tax law and the Double Taxation Agreements Germany has with your country.

How much tax will you owe?

If you received an inheritance that exceeds your allowance level, calculating the amount you owe can be a bit complicated.

READ ALSO: Should you get a tax advisor in Germany – and how much does it cost?

There are three inheritance tax brackets, which are based on your relation to the deceased and have no relation to the tax brackets for income tax. 

Immediate family of the deceased, such as spouses, children or grandchildren are included in tax class I, and can generally expect to be taxed at a rate between seven to 11 percent. Non-related heirs are included in tax class III and can expect to pay a 30 percent tax on inheritances up to €13 million, or 50 percent for inheritances above that.

For more information on Germany’s inheritance taxes, we have a guide to the topic.

You can also use tax calculators like this one by Steuertipps.de, or this one by Steuerklassen.com to get an idea about how much tax you may owe.

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