Full time employee tax
Freelancer tax is explained in the "Working in Germany -Working as Freelancer part"
The most important tax for jobholders in Germany is income tax. You will make acquaintance with this from your very first salary payment. Here, we explain how to calculate the amount of income tax you have to pay and how you might be able to get some of the tax which was withheld from your salary back again.
Who transfers the tax payments
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 the year 2013, this basic tax allowance is 8,130 euros if you are unmarried and not in a civil partnership. From the year 2014, the basic tax allowance will be 8,354 euros. For couples who are married or in a civil partnership, it was 16,260 euros in 2013 and will be 16,708 euros from 2014. If your taxable income is higher than these amounts, you will pay income tax on it. The taxation rates vary from 14 percent to 45 percent. The rule is: the higher your taxable income, the higher the rate of taxation. However, the top tax rate of 45 percent is only payable on incomes of more than 250,730 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 501,460 euros.
Tax relief for families and single parents
The amount of income tax you pay does not just depend on your income. To calculate how much income tax you have to pay, your family situation is also taken into account. To avoid a situation in which this is done only at the end of the year but rather to take it into account for the month in progress, all taxpayers are divided into different tax brackets:
Tax bracket I: If you are single and not eligible for tax relief as a single parent, you will come under tax bracket 1. The same applies for permanently separated spouses or civil partners, and divorced people.
Tax bracket II: This tax bracket applies to single parents who live alone and are entitled to tax relief for single parents.
Tax bracket III: Employees who are married or in a civil partnership can choose this tax bracket if one of the couple does not work or earns considerably less than the other. The other spouse or partner then comes under tax bracket 5.
Tax bracket IV: If the two spouses or partners earn about the same amount, this tax bracket is better for them.
Tax bracket IV with factor: Couples who are married or in a civil partnership can apply annually for a factor to be applied. This takes into account the amount of income tax that is payable jointly under the income splitting system. In that case, the amount of income tax which is deducted every month corresponds more or less to the probable annual amount of tax due by the couple.
Tax bracket V: Jobholders who are married or in civil partnerships come under this tax bracket if their spouse or partner comes under tax bracket 3.
Tax bracket VI: This applies to all those who have a second job or more.
Income tax declaration
At the end of one calendar year, you can ask the government to check whether you have paid too much income tax. To do so, you submit your income tax declaration to the tax office. On the basis of the figures you supply about your actual income and financial charges, the government is able to check whether you are entitled to a refund. It usually worthwhile filling in the tax declaration form: according to the data of the Federal Statistical Office, nine out of ten taxpayers in Germany receive a refund. On average, they receive a refund of around 900 euros.
How to fill in your income tax declaration
You can collect the tax declaration forms from your tax office, or download them from the tax office Web site and print them out. You also have the possibility of making your tax declaration online, at www.elster.de. If you are obliged to file an income tax declaration, either because you have chosen the combination of tax brackets III and V (3 and 5), or have received indemnities (for example health insurance payments, unemployment benefit or child benefit ) of more than 410 euros, you must hand it in to the tax office by the end of May of the following year. In the tax declaration, you state how much you earned in the past year and how much income tax, solidarity surcharge and, if applicable, church tax, your employer has paid to the tax office on your behalf. Your employer will normally inform you of these figures once the calendar year has ended in a separate statement (a print-out of the electronic income tax certificate). You should then enter these figures in your tax declaration.
Certain expenses may lower the amount of tax you have to pay. You should also enter these in your tax declaration. They include, for example:
• Expenses for moving house for professional reasons, including from abroad
• The costs of applying for jobs, including from abroad
• Expenses for travel to work
• The costs of private pension schemes
For many kinds of expenses, it is important to keep copies of receipts as proof, and that the expenses/costs were incurred between January 1 and December 31 of the year in question. However, if you take up employment in Germany which makes you eligible for income tax, and you incurred costs related to this during the previous year, you can declare them and have them deducted from your taxable income. To do so, you must submit a tax declaration for the previous year as well. The tax reduction is effective for the year during which you earned income in Germany.
Do it yourself or ask an expert?
You can also ask a tax consultant or an “income tax assistance association” (Lohnsteuerhilfeverein) to fill in your income tax declaration. Although you have to pay for the services of a tax expert, it can be worthwhile – for example, if your income situation is complicated – getting help either from an association or a tax consultant. If you prefer to deal with your tax declaration yourself, the tax office or the Help and FAQ pages on the Elster Web site can answer your questions. Elster is an electronic form with which you can send your tax declaration to the tax office online. For fuller advice, you can also go to an “income tax assistance association” (Lohnsteuerhilfeverein) which will provide advice or fill in your tax declaration form for you at fairly low cost. Another alternative which is open to you is to buy software for your PC. These programmes guide you through the tax declaration and then forward your completed declaration to the tax office.
Federal Employment Agency
The missions of the Federal Employment Agency, a publicservice body in Germany, include finding placements for workers and providing Germany’s official employment exchange portal. (German, English, French, Italian, Russian, Turkish) http://jobboerse.arbeitsagentur.de/
Federal Foreign Office
On the Federal Foreign Office Web site, you’ll find information on immigration law and visa procedures, working and living in Germany and German foreign missions. (German, English, French, Portuguese, Arabic, Chinese) http://www.auswaertiges-amt.de
Federal Ministry of Finance
On the Federal Ministry of Finance Web site, qualified professionals can find out more about German income tax rates and estimate their income tax using the interactive tax calculator. (German) http://www.bundesfinanzministerium.de
The European Job Mobility Portal provides information about the conditions for living and working, as well as doing basic and advanced training, in numerous European countries including Germany. In the job exchange section, qualified professionals will find job offers from German companies. EURES is run by the European Union. (German, English, French, Spanish, Polish and other languages) https://ec.europa.eu/eures/
Federal Office for Migration and Refugees (BAMF)
One of the missions of the Federal Office for Migration and Refugees is to help immigrants get settled in Germany. The Web site offers information about getting foreign diplomas recognised and tips on job-hunting in Germany. (German, English, Russian, Turkish) http://www.bamf.de
Kompetenzzentrum Fachkräftesicherung (Centre of Excel-lence / Securing Qualified Professionals)
This centre of excellence provides information about which occupations in Germany are in urgent need of qualified professionals. The project is funded by the Federal Ministry for Economic Affairs and Energy. http://www.kompetenzzentrum-fachkraeftesicherung.de/
Recognition of qualifications in Germany
This information portal belonging to the Federal Ministry of Education and Research explains how qualified professionals can get qualifications that they obtained abroad recognised in Germany. (German, English) http://www.anerkennung-in-deutschland.de
Central Office for Foreign Education (ZAB)
Information about getting university and vocational diplomas recognised in Germany (German) http://www.kmk.org/zab/anerkennung-im-beruflichenbereich.html
German Social Insurance
This Web site explains about the German social security system, including health insurance and pensions. (German, English, French) http://www.deutsche-sozialversicherung.de
The Goethe-Institut – Germany‘s institute of culture – offers language courses in 92 countries, online courses, free drills and information about Germany and German culture. (German, English) http://www.goethe.de/