Income tax in Germany

From when do you have to pay income tax?

The question already suggests it: Income tax is not due until you reach a certain amount. To be more precise, it is 10,908 euros in 2023. If your income is below this value, you do not have to pay tax. This is the so-called basic tax-free amount and it is regularly increased. Conversely, this means that income tax is due from the 10,909th euro.

Very important in this calculation is that your income and earnings are not identical with your income. This means that what you see on your income tax certificate, for example, is only a starting point. If you file an income tax return, you can reduce this value. Only what remains at the end is subject to income tax. Therefore, this final value is also called taxable income.

How is the income calculated?

In order to determine your taxable income, i.e. the money on which you will ultimately have to pay income tax, the tax office requires several steps. First, it gets an overview of your income and checks what other income you had. This means that not only your salary as an employee is important but also, for example, your income from capital assets or renting and leasing. Any income-related expenses and tax allowances are deducted from this and a total amount of your income is calculated. The tax office then takes a closer look at your income tax return and deducts your special expenses, extraordinary charges and other items from your income. Only then is your income known. If you are entitled to a child allowance, this is taken into account in the last step. At the end of this calculation, your taxable income is finally known.

What is the income tax rate?

"How much tax do I have to pay on my income now?" you are probably asking yourself. The answer: it depends on how much you have to pay. The tax authorities put it in more formal terms: it depends on your "ability to pay." The rule of thumb is: If you earn more, you have to pay a larger portion of your income in taxes. He/she is "more able-bodied."

How much tax is due on your annual income is calculated using the income tax rate. And this income tax rate is a progressive tax rate. This means that the personal tax rate increases as the taxable income increases.

The income tax rate starts in the zero zone, the basic tax-free amount. Up to this point, 0 percent income tax is paid. After that, the income tax rate ranges from 14 percent to 42 percent. This means that if you have very little income to pay tax on, you only have to pay 14 percent tax on it. If you are a top earner, you pay the top tax rate of 42 percent or 45 percent.