Taxes and Germans – at the mere mention of this issue, a tax consultant with many years of experience will throw up their hands. Perhaps no other topic has been covered by as much specialized literature as taxation in Germany. Deutsche Welle reports on the peculiarities of the German tax system.
Lohnsteuer and Einkommensteuer – both mean income tax. The first term applies to employees, wage earners; the second to individual entrepreneurs, freelancers, lawyers, tax consultants, doctors if they have their own practice.
When You Don't Have to Pay Taxes
The tax-free minimum in Germany is 9,000 euros per person. So, if the total income of a married couple does not exceed 18,000 euros per year, they are exempt from paying taxes. Everything above that is subject to taxation. The principle is quite simple: the more a person earns, the more taxes they pay. This is called a progressive tax scale.
The tax rate in Germany has a very wide range: from 14 to 42 percent. In some cases, a special maximum rate of 45 percent applies. The progressive scale works in such a way that if annual income exceeds 60,000 euros, only the difference between the income amount and the threshold of 60,000 euros is taxed at the maximum rate.
The lowest tax rate applies to incomes of professions where annual earnings do not exceed 30,000 euros – for example, nurses, kindergarten teachers, hairdressers, social workers.
The 42 percent rate applies to unmarried individuals without children with an annual income from 60,000 euros, as well as married couples with an income above 120,000 euros.
Anyone can file a tax return (Steuererklärung) themselves, filling it out manually on printed forms or using special software. For an employee receiving a fixed salary (Lohn), filing a tax return independently is a realistic task. By the way, they are not required to file a return, as income tax has already been paid, but tax consultants recommend doing it for everyone.
Nuances of the Tax Return
Difficulties arise when there are additional earnings (in this case, filing a tax return is mandatory), or if a person is not in an employment relationship with an employer but is an individual entrepreneur. Then, most likely, they will have to turn to professionals.
So, consulting a tax consultant is voluntary. An important point to consider: if you file your tax return yourself, the deadlines are earlier (about six months difference) than when a tax consultant handles the documents (until December 31 of the year following the reporting year).
In the tax return, two groups can be distinguished: the taxes themselves and social contributions. In addition to income tax, taxes include two more: the solidarity surcharge for the new federal states (Solidaritätszuschlag) and the church tax (Kirchensteuer). Social contributions include payments to the pension fund, health insurance, as well as insurance for long-term care and unemployment.
In total, there are six tax classes in Germany: from 1st (unmarried) to 6th (when a person has several jobs). The amount of earnings and marital status are two factors influencing the tax rate.
As a rule, the most favorable taxation is for married couples. The heaviest tax burden is for taxpayers living alone and without children.
Can You Deduct Interview Costs?
Another important concept is expenses related to earning income (Werbungskosten). For example, if you move to Germany for work, you can reduce the total amount of income subject to taxation by the cost of moving. Or, when getting a job, you incurred expenses to attend an interview. Be sure to keep the original receipts for travel and accommodation.
Another example: you have to commute to work in another city. The costs associated with this can also be declared in the return as expenses related to earning income.