German Tax System

Before moving to Germany, it's worth understanding the tax system, especially if you'll be working there. Germany's main taxes are income tax (Einkommensteuer), social security contributions, solidarity surcharge (Soli), VAT, and church tax.

Below we cover the income tax rates for 2026, how tax classes work, what you can deduct, and how to file your tax return.

Individual income taxes in Germany

Anyone who lives and works in Germany pays income tax on their earnings. Germany uses a progressive tax system, meaning the more you earn, the higher the rate on each additional euro.

Your employer deducts income tax directly from your salary each month. This system is called Lohnsteuer (wage tax).

How do I pay income tax?

In Germany, income tax is typically deducted directly from your paycheck by your employer through a system known as "Lohnsteuer." This means that your employer withholds the tax from your salary and remits it to the tax authorities on your behalf.

What is the income tax bracket for 2026?

For the 2026 tax year, the brackets are:

A few important things to understand:

• The €12,348 basic allowance (Grundfreibetrag) applies to everyone automatically, you don't need to apply for it.
• The rates between €12,349 and €69,878 are not a flat rate; they increase gradually using a formula, so you never pay the top rate on your whole income.
• 42% is a marginal rate, not your overall tax rate. Only income above the threshold is taxed at that rate.

Online tax calculator

If you want to find out how much you will make after taxes in Germany, using an online calculator can be extremely helpful. These calculators allow you to input your gross salary and other relevant details to estimate your net income after taxes and social security contributions. They take into account various factors, such as tax classes, solidarity surcharge, church tax, and social security contributions, providing a detailed breakdown of deductions and your take-home pay. You need to calculate your monthly (or weekly) wage and then calculate how much will be deducted for income tax and social security contributions based on the bracket you will fall into.

Use an online German income tax calculator to determine how much you should take home after tax and social security contributions.

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Tax classes in Germany

There are six tax classes in Germany (called Steuerklassen), and the one you fall into will affect which rate you are taxed at.

• Class I: Single/widowed/civil partnership/divorced. Married persons not in classes II, III, or IV
• Class II: Single but entitled to single-parent allowance
• Class III: Married but spouse does not earn wages/is classified under tax category V/recently deceased
• Class IV: Married (not separated); both earning and residing in Germany
• Class V: Married, but one spouse is classified under tax class III
• Class VI: Individuals on multiple wages from more than one employer

The annual tax return: Income tax declaration

Filing an annual tax return is necessary to reconcile your tax liability, especially if you have multiple income sources, significant deductions, or are self-employed. The tax year follows the calendar year, and the deadline for submitting the tax return is generally July 31st of the following year. If you use a tax advisor, this deadline can be extended to December 31st.

So for the 2025 tax year, the self-filing deadline is July 31, 2026. If you use a tax advisor (Steuerberater), this extends to February 28, 2027.

The tax return process involves declaring all sources of income, applicable deductions, and credits to ensure that you have paid the correct amount of tax throughout the year. When you submit your income tax declaration (Einkommensteuererklärung) to the local tax office, it will reveal whether you have made excess payments and are due a refund.

Those who are employed and taxed at source are not required to do a tax return unless they have changed jobs during the year or earned an additional self-employed income.

Although employed individuals are not required to do a tax return, it might just be in your interest to do one. If you have not been in Germany for a full tax year, for example, you may be entitled to a tax refund. However, this process can be complicated and time-consuming. To avoid those issues and make it easier for you to do your tax declaration, you can check Wundertax. The fintech helps students and expats working in Germany to submit their income tax declarations online.

How to pay less taxes

Under German income tax law, many taxpayer expenses can be deducted from your income. If you want to pay less in taxes, consider the following options.

• Tax refund: Although employed individuals are not required to do a declaration, sometimes it is wise to do one to get an income tax return.
• Claiming deductions: Include deductions for work-related expenses, medical costs, and childcare expenses.
• Home office expenses: If you work from home, you can deduct a portion of your rent, utilities, and office supplies.

Tax advisor

It is highly advisable to use the services of a tax advisor or "Steuerberater" to file your tax return and even just to calculate estimates for what you do or will owe as a freelancer in Germany.

 

Social security contributions

 On top of income tax, employees pay mandatory social security contributions covering pension, health, long-term care, and unemployment insurance. These are split roughly 50/50 between you and your employer, so your payslip shows your half only.

As an employee in 2026, your share is approximately:

• Pension: 9.3% of gross salary (up to €101,400/year)
• Health: ~8.75% of gross salary (up to €69,750/year)
• Long-term care: 1.8% — or 2.1% if you're childless and over 23
• Unemployment: 1.3% of gross salary (up to €101,400/year)

Contributions are only charged up to the income ceiling; earnings above that cap are not subject to contributions.

What can expats deduct?

German tax law lets you deduct a range of expenses from your taxable income. A flat €1,230 work-related expense deduction (Werbungskostenpauschale) is applied automatically to all employees — but if your actual costs are higher, you can claim the real amount instead.

Common deductions for expats:

• Home office: €6 per day, up to €1,260 per year — no dedicated room required
• Commuting: 38 cents per km from the first kilometre in 2026
• Relocation costs: If you moved to Germany for work, these may be deductible
• German language courses: Deductible if taken to improve your professional situation
• Health and pension contributions: Fully or partially deductible as Sonderausgaben (special expenses) 

Other German taxes

As well as income tax and social security contributions, there are several other significant taxes in Germany that you should be aware of.

What is church tax in Germany?

Church tax (Kirchensteuer) is a levy paid by registered members of Christian or Jewish congregations in Germany. Similar to income tax and social security contributions, this tax is typically deducted directly from your gross wage. Members are taxed at a rate of 8-9% of their income tax liability, depending on the federal state they reside in. It's 8% in Bavaria and Baden-Württemberg, and 9% in all other states. If you're not religious or don't want to pay it, you can formally deregister (Kirchenaustritt) at your local Standesamt or Amtsgericht.

This system ensures that religious institutions receive funding directly from their adherents, which the state collects on behalf of the churches.

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What is solidarity tax in Germany?

This tax was introduced in 1991 to rebuild and invest in Eastern Germany after reunification. It remains in place to help finance the ongoing costs of a unified Germany. In 2021, the solidarity surcharge (Solidaritätszuschlag) was abolished for most taxpayers after 30 years. However, those exceeding the annual exemption limit (Freigrenze) must still pay the surcharge.

In 2026, singles don't pay Soli unless their annual income tax bill exceeds €20,350, this affects roughly the top 10% of earners. This change significantly reduces the tax burden for many workers in Germany, particularly for those who are subject to social security contributions and earn less than the exemption limit. So, if you earn more than this amount, you must pay the solidarity surcharge.

What is corporation tax?

Corporation Tax in Germany is a tax levied on the profits of companies operating within the country. The standard rate is 15%, with an additional 5.5% solidarity surcharge on the corporation tax. Companies must also pay a municipal trade tax, which varies between 7% and 17%, depending on the location. This tax system ensures corporations contribute to public finances based on earnings.

How much is VAT in Germany?

Value-added Tax, or VAT (Mehrwertsteuer), is charged on all luxury or non-essential items and services in Germany. The current standard VAT rate is 19%. Some items, such as books and flowers, have a reduced VAT rate of 7%.

Seconded employees in Germany

What should I consider when working as a seconded employee? Many people who move to Germany do so for work because they are seconded, either at their own request or that of their employer. Anyone who is seconded continues to be employed by the same company, which means seconded employees remain on the payroll of their home country and will continue to pay taxes at home.

They, therefore, do not need to pay tax in Germany. Those who are paid by their employer in the country where they pay tax are also not obliged to make social security contributions in Germany. This is true for all EEA countries, but many other countries have bilateral agreements similar to those of Germany. This secondment rule typically applies to secondments of up to two years, although it is possible for this to be the case for up to five years.

Private health insurance

Seconded employees in Germany are advised to take out private health insurance, although EU citizens will be able to access some basic medical care with their EHIC - Electronic Health Insurance Card.