Tax System and Tax Classes in Germany. A complete guide

Are you already in Germany or are you ready to move to Germany? Before you move to this amazing and beautiful country, it’s essential for you to be familiar with the taxation system of Germany, where you should know about the Tax System and Tax Classes in Germany. This is a must requirement for those, especially who are willing to work in Germany.

Ah, taxes! One of the most tedious topics to treat, but we can’t ignore it if you are actually getting an income. Income tax, social security contribution, solidarity tax and church tax are some of the most common taxes. Out of these, the most important tax for a jobholder in Germany is the income tax.

Those people, who reside in Germany and are employed, are of course required to pay the income tax in Germany, i.e.  ‘Einkommensteuer’. Let’s now understand the concepts of the German tax classes which is called the ‘Steuerklassen’.

Types of Tax Classes in Germany

Types of tax classes in Germany can be defined on the set of Income tax rate which is based on factors such as marital status, a working partner or dependent children. Depending on these criteria, ‘Finanzamt’ (the German tax office) categorizes your income slot for different types of tax classes in Germany. With the help of this tax system, German employers can apply the correct tax rate on your pay slip. In Germany, tax classes are classified into six categories.

Class 1

The first tax class is for those people who are unmarried workers or for those, whose partner is not a German resident or living in abroad or who lived separately for a long time. It also includes widows/widowers/divorced and civil partners.

Class 2

This tax class as same as class 1 but a very little difference is there between both the tax classes. The difference in that class 2 type taxes also applies to single parents of minor or that person who has been entitled to government assistance.

Class 3

Married worker who is living with their partner or widows/widowers living in Germany less than one year comes under class 3 tax in Germany.

Class 4

This class belongs to those people who are married workers and both of them are having a similar level of employment income. This class is also similar to class 3 type of German tax.

Class 5

Class 5 is basically categorized for those married couple who normally falls into category 4 of tax class but their partner falls under class 3.

Class 6

This is an important and high paid tax class in the taxation system in Germany. This tax class is categorized for those individuals who receive income from multiple sources or more than one employer in Germany.

Know about Some Important Taxes in Germany

The following types of taxes are considered to be the important taxes in the German taxation system.

  • Solidarity Tax- All those persons earning above € 972, have to pay the Solidarity Tax, i.e. ‘Solidarittatzuschlag’ in Germany.
  • Church Tax- Church Tax is for those people who are registered as a member of any church. It is collected at your gross wage along with income tax. It can be charged at 8 to 9% of your gross salary and is called ‘kirchensteuer’ in Germany.
  • Progressive Tax- Germany has followed a progressive taxation system. In this system, higher earners have to pay high tax in Germany, i.e. the Progressive Tax.

When to Change Your Tax Class in Germany?

The following circumstance makes you to change your types of tax classes in Germany. This is possible only once a year.

  • When your partner becomes unemployed or is working as a freelancer, or is having a retirement or taken a parental leave.
  • When your spouse gets a job again and becomes an employee of any organization.
  • When your spouse is not anymore with you (death of partner).
  • In case of your divorce.

PRO TIP

For changing tax class after marriage, you need to submit Certified Translation of your marriage certificate in German.

What is the Tax Rate in Germany?

The minimum tax rate in Germany is 14% on the income of EUR 9408 to 57050, which you have to pay if you are employed in Germany. Rate can be increased progressively up to 42% for the taxable income of approx. EUR 52,882 to 27000 in Germany.

Some Prominent Features of Tax System and Tax Classes in Germany

Below given are some of the prominent features of the taxation system of Germany.

  • In Germany, the financial year is same as calendar, i.e. from January to December.
  • Tax rate is progressive in Germany.
  • No tax provision exists to declare any tax saving for the employer.
  • Tax rate also depends on your spouse, sibling and marital status. So you must register your family to check your tax class out of all types of tax classes in Germany.

Conclusion

Whether you are an expat or German resident, if you are employed in this country, it is your responsibility to register with the tax authorities to know your tax class out of all the six types of tax classes in Germany. Once you are registered, your tax class will be used for calculating and withholding tax from the monthly payroll.

Disclaimer: This is a personal blog. The Information shared here represent my own and not those of the German Government. We dont guarantee the accuracy of the information. For exact details please visit the website of Federal Ministry of Finance: https://www.bundesfinanzministerium.de/Web/EN/Home/home.html

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Comments

Prakash Mishra

Very good Information.

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