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TAXES

One in 11 taxpayers fall within Germany’s highest tax bracket

A new study shows that one in 11 workers in Germany fall within the country's top tax bracket - and it's not just very high earners who face big burdens.

Published: 18 April 2017 11:54 CEST
One in 11 taxpayers fall within Germany's highest tax bracket
A tax return form. Photo: DPA.

The study released on Tuesday by the Cologne Institute for Economic Research (IW) shows that one in 11 Germans pays the top income tax rate of 42 percent, amounting to 4.2 million people.

Single workers without children fall into this bracket when their gross annual salary amounts to €65,000 or more. A family with two children in which only one of the couple withdraws a salary will generally pay the the top tax rate starting at a gross income of €135,000.

The top ten percent of earners are also paying nearly half of the total amount of income tax collected, while the top 30 percent pay more than two-thirds of all income tax.

On the other hand, 2.7 million workers do not pay any income tax because they earn too little.

“An analysis of the distribution of the most revenue-productive types of tax shows that in Germany the broadest shoulders bear the heaviest burden,” the report states.

The study also notes that households with very high incomes were not completely included in the data for the report, and therefore their share of tax revenues could be even higher.

The report also reveals how much average earners are burdened by taxes. A single person with no kids making about €1,960 per month pays about 46 percent in taxes and social contributions.

And a single person earning €3,250 per month spends about 51 percent of their paycheck on taxes and social contributions, while married couples and families earning the same amount also end up giving almost half of their incomes to the state.

Germany has the second highest tax burden in the developed world, according to a study released last week by the OECD.

The IW study authors write that there should be reforms to the tax system, despite the fact that its overall goal – to ensure that those with the most money face the brunt of the tax burden – seems to be working.

The authors conclude that lowering income tax rates – especially for low income earners – would relieve individual tax burdens, and would also increase incentives for people to extend work hours and take up jobs that are subject to compulsory social insurance.

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TAXES

EXPLAINED: The best apps to help you track your German taxes

Like much of the country's bureaucracy, German tax law is complicated. But there are plenty of useful deductions for those in the know. Here are a few apps that might help you stay ahead of it.

Published: 7 May 2024 14:57 CEST
EXPLAINED: The best apps to help you track your German taxes

Whether it’s helping you to not fall afoul of German tax authorities, spot all your possible deductions, or to get support in English, the right tax app can save you a lot of headaches when filing your German taxes.

ELSTER may be available in English, but it won’t necessarily help you do all those. Hiring a professional tax advisor is always an option, but they can come with fees running into the thousands of euros per year – which go up the more you earn.

So which apps should you consider? Well as with many things in Germany – it depends a bit on your situation. Many tax apps here are designed either for employees specifically or are tailored to freelancers and the self-employed. Which one you are will have a lot of influence on your available choices.

READ ALSO: Germany’s official online tax portal is now available in English

Apps for employees

Even though your tax and social insurance contributions automatically come off your payslip every month and employees don’t technically have to file a tax return – there are some years when it makes sense to file one.

This happens when you think you have enough deductions to get a decent refund – or if you have to declare certain income like capital gains or inheritance.

The good news though is that tax apps for employees tend to be more straightforward and come with fewer fees.

Apps specifically designed for employees, which have information in English, include Wundertax, Taxfix, and SteuerGo. In addition to English and German, some of these apps, like SteuerGo – have additional languages like Romanian or Polish.

These apps have a fairly standard rate of around €35 per tax return. Some even have reduced bulk rates if you decide to do more than one tax return with them.

For this, you’ll typically get some support – although very specific and complicated cases may still leave you reaching for the phone to call a professional tax advisor.

You’ll also get the functionality to add proofs of your expenses as needed, checks to see if you’ve claimed everything you can, and simplified electronic submission to the tax office.

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

Apps for freelancers and the self-employed

Freelancers and the self-employed are not only required to file annual tax returns – but have far more complicated declarations.

Typically, they must charge, claim, and pay VAT – and are eligible for a host of additional deductions that employees aren’t able to claim. Those who have clients based elsewhere in the EU often also have to file additional paperwork.

That’s why apps made for freelancers in Germany are typically more sophisticated and come with more support. They also cost more, but are still a lot cheaper, however, than paying a professional tax advisor.

Apps specifically designed for the self-employed in Germany that are available in English include Accountable and Sorted. German alternatives include apps like FastBill and LexOffice.

The top of the line professional plans on these apps typically come with a tax-deductible price tag of €20 a month. Some, however, may offer a discounted plan if you’re a Kleinunternehmer, or a firm with less than €22,000 a year in revenue.

Others have free starter versions for people just beginning their businesses.

Other services and functionality can differ greatly. Some apps will help you create invoices. Others will offer you professional tax advice one-on-one for an additional hourly fee. It’s best to shop around with some of these to find the one that best matches your needs as a freelancer.

READ ALSO: Can I have a freelance side gig as an employee in Germany?

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