Taxes in Germany - Explained [2023]
This article gives you an overview of taxes in Germany as an Expat
LIVE IN GERMANY
If you recently relocated to Germany, you should be familiar with the country's taxes, particularly its tax classes. It is advised that everyone in the workforce understand the significance of tax classes in Germany. Let's be clear: Only workers are affected by Germany's tax classification. The six tax classes in Germany, how to determine which class applies to you, and the fees associated with each class are all covered in this article. The income tax (einkommensteuer) takes up the majority of your take-home pay, followed by social security contributions (sozialversicherung) and then other taxes like the church tax (kirchensteuer), and solidarity tax (solidaritätszuschlag).
In addition, this article will also give you information on the various tax kinds and tax classes. Additionally, we've addressed some of the most frequently asked questions about taxes, including "How to calculate the taxable amount," "What is the income tax rate in Germany," "Is there any tax-free earning?" and "What is the tax refund and how to apply for it."
Income Tax:
Income tax is the percentage of your earnings that is paid to the government. If you have a job, this sum is automatically subtracted from your gross pay, along with other contributions which we will discuss later in this article, leaving you with your net pay, which is what is deposited into your bank account. In this manner, the German Tax Office (Finanzamt) is paid the taxes on your behalf by your employer. But, there is also a cap implemented on your income under which the income is tax-free (Grundfreibetrag).
Tax-Free allowance:
This tax-free limit normally changes every financial year and is normally increased, the tax-free limit for 2023 is €10,908 per year for singles and €21,816 per year for a couple. This means you can earn an average of €909 a month without any taxes, and similarly, for married couples, it's €1818 per month. You can also read about all the changes that have been made for the year 2023 on the official website of the Federal Ministry of Finance (Bundesministerium der Finanzen) Following table shows how much this tax-free allowance increased in the last 5 years.
After you have crossed the tax-free limit you are subject to an income tax which is charged on a so-called progressive basis. Progressive means if you earn more, you pay more (variable taxes). This variability of taxes is also different for different tax classes, there are 6 tax classes in Germany which are based on your marital status and the number of employments. Look at the following table to find out which tax class is applied to you.
Tax classes in Germany:
There are 6 tax classes in Germany, people are normally confused in classes 1, 3, and 5 because Tax class 1 is applied to those who are single/widowed or divorced. If you are married and your spouse earns less than you then your spouse will have Tax class 5 and you get Tax class 3, in this case, you both should be in Germany and your status should be updated in the federal marriage register (Standesamt). If you are married and your spouse is not in Germany you will still be in Tax bracket 1 and not 3 or 5.
You and your spouse must register together at the marriage register (Standesamt) after being married. Your tax class modifications will be automatically sent to the German Tax office (Finanzamt) following the registration of your marriage at the Rathaus or Standesamt. The Finanzamt will by default move both couples' tax classes to tax class 4 after a marriage. It doesn't matter if one spouse makes much less money than the other or none at all. After that, you and your spouse can select between Tax class 3 and 5 based on your and your spouse's earnings.
Change Tax Class in 3 Simple steps:
You can change your tax class in three simple steps,
Fill out the form called Antrag auf Steuerklassenwechsel bei Ehegatten.
Download, Print, and Sign it (both spouses in the case of a couple).
Send it to your Tax office (Finanzamt).
How to fill out this form? read here!
How much will you get after Taxes:
The net salary you get at the end of the month depends on your tax class, let us take an example of taxes for tax class one. You can use the salary calculator. Following table will give you an overview of tax brackets in tax class 1.
Need Advice ?
If you need solicited advice, feel free to contact me. We can set up an individual mentoring session.