Finances and taxes

 

 

This page gives an overview of how German taxes work, and how much money one needs to live in Germany (so that potential immigrants can evaluate whether their income is sufficient for living in Germany). You may also find the pages on banks and bank accounts and saving money helpful.

 

Cost of living

Comparison

Using a cost-of-living database like Numbeo, you can get a rough idea of how the cost of living in Germany compares with the cost of living in your home city. If you’re thinking of moving to Germany, add about 10-15% to your adjusted expenses - you’re likely to spend more per month initially, as you will have one-time costs, as well as a learning over time how to make your money go further.

Bottom-up calculation

For a Berlin-centric calculation, see cost of living in Berlin. Most of the numbers apply to all of Germany, save for rent.

Housing

The largest expenditure is likely to be housing - on average, Germans use between one third and half of their net income for housing. To get an idea of how much you can expect to pay in rent, look at the offers in the city you’re interested in, or use a map of average rents per m² - although note that smaller apartments tend to be more expensive than larger apartments per m². Don’t forget to add around 25% for utilities (Nebenkosten) - see the page on housing for more details.

Other expenses

If you don’t have a good expenditure baseline from your home country, you can estimate your monthly expenses through statistics - but you have to know that you may deviate (sometimes significantly) from the average. For example, if you own a car you will spend considerably more on transport than if you use public transport or a bicycle. Everyone’s spending habits are different, so make sure to leave enough of a buffer until you get a better handle on your expenses. Below are some averages.

Students

According to this website, average living costs for students in Germany (per month) are:

  • Housing (rent and utilities): 264-512 € for a room, or cheap student housing
  • Food: 133-203 €
  • Transport: 74-119 €
  • Clothing: 30-56 €
  • Communication (telefone, internet, TV tax, etc): 25-50 €
  • Educational materials: 17-24 €
  • Health (including insurance premiums and medicine): 0-140 €
  • Leisure and sports: 43-81 €
  • University fees: 10-170 €

This adds up to between 600 and 1250 € per month - highly dependent on whether you choose to study in a cheap or expensive city - and notably excludes any large one-time expenses (such as buying a computer or going on holiday).

Please also see this page for information on financing your studies in Germany.

Other sources for cost of living for students:

  • Studentenwerk quotes an average cost of living of 920 € a month for German students and 725 € for international students.
  • Die Zeit has a database of student costs of living by city. Note that the data is from 2012, so add around 10-15% to account for inflation and increases in rent (which tends to rise faster than inflation, particularly in large cities).

Single professionals

According to this website, the average single person in Germany spends (per month), in addition to housing costs:

  • Food and drink: 200 €
  • Clothing: 65 €
  • Household and furniture: 65 €
  • Health: 65 €
  • Transport: 180 €
  • Communication: 50 €
  • Leisure: 160 €
  • Education: 10 €
  • Holidays and going out: 80 €
  • Other: 70 €

That adds another (roughly) 1000 € per month on top of your housing costs. No matter what costs you budget for, I would strongly suggest you add a little buffer so that you can save some money every month (to build up an emergency fund, save for major purchases, and start saving for retirement).

The German national office of statistics publishes average expenses per household size. For a one-person household, the average is:

  • Housing (incl furniture and appliances): 745 €
  • Transport: 215 €
  • Food and drink: 210 €
  • Leisure and hobbies: 175 €
  • Holidays: 100 €
  • Clothing: 65 €
  • Health: 65 €
  • Communication: 50 €
  • Education: 10 €
  • Other: 70 €

Which sums up to around 1700 € per month.

A survey from Focus.de (from 2016, so add a few percent to account for inflation) estimates that a single professional needs a net income of between 750 and 1050 € per month (plus housing), depending on what city they live in (the most expensive cities being, in descending order, Munich, Frankfurt a.M., Hamburg, Wiesbaden, Stuttgart, and Berlin). Housing costs for a single person, on average, vary between 500 and 1550 € per month (again, strongly dependent on the city).

Families with children

According to the Focus.de survey, a family with two children needs between 35 and 65 k€ total net income (strongly dependent on the city) to live reasonably comfortably.

According to the German national office of statistics, the average expenses for multi-person households are:

  • Two people: 2900 €
  • Three people: 3440 €
  • Four people: 3920 €

Income distribution

For singles, the income distribution in Germany is approximately:

  • Poor: Below 1000 € / month net (15 k€ / year gross)
  • Lower middle class: Up to 1400 € / month net (24 k€ / year gross)
  • Median (i.e. 50% of people in Germany earn more than this, the other 50% earn less): 1750 € / month net (32 k€ / year gross)
  • Middle class: Up to 2600 € / month net (53 k€ / year gross)
  • Upper middle class: Up to 4400 € / month net (97 k€ / year gross)

See here for a more complete breakdown, including for couples and families with children, and here for an interactive tool to visualise the income distribution.

Salaries

Germans don’t generally talk about how much they earn, which means that websites which rely solely on user-submitted salary data (e.g. Glassdoor) should be taken with a grain of salt. Gehaltsvergleich is probably one of the better sources of salary information in Germany, although they also report a fairly broad range of salaries for a given profession.

Other good resources for salaries include:

  • The Entgeldatlas of the German federal ministry of work, which has statistics for salaries by profession, including geographic distribution - but excludes any non-salary remuneration, as well as self-employed people.
  • The Gehaltsvergleich from the German minsitry for statistics. It estimates your salary based on your career, location, qualifications, and more.

Taxes

In order to calculate your net income based on your gross income, use a wage calculator like this one (there are many others, but this one is one of the easiest to use, plus, it gives a good explanation of what the various terms are).

  • Leave “tax-free allowance” empty
  • Set your “church tax” to “yes” or “no”, depending on whether you are a member of a mainline (i.e. not evangelical) Christian or Jewish religious denomination. More info
  • Set all the insurances to “compulsory insurance”, and leave the “health insurance add-on” at its default value (usually a bit above 1%)

Set your tax class to:

  • 1 if you’re unmarried
  • 3 if you’re married and your partner doesn’t have an income (or a very low income)
  • 4 if you’re married and you and your partner have roughly comparable incomes
  • 5 if you’re married and don’t work (or have a very low income)

The German tax code is fairly complicated, but here are a few explanations of the parts which are most likely to affect you. The explanation below is highly simplified and doesn’t mention many special cases and exceptions, so don’t take this as gospel, but it should help you to better understand the difference between your gross and your net salary.

Income tax

  • Income tax is a percentage of your gross salary. The first ~10,000 Euro (10,347 in 2022, but that amount rises yearly) a year of income are tax free. Income above that is taxed at a marginal tax rate of 14%, rising gradually to 42% at around 55k€ a year. Your total income tax rate therefore rises gradually with your income - it’s about 8% at 25k€, 16% at 45 k€, and 32% at 110 k€. This graphic illustrates the tax rate (it stops in 2010, but it helps to illustrate the principle).
  • If you have a high income (above ~60k for a single person), you pay a solidarity surcharge (Solidaritätszuschlag) of 5.5% of your income tax (not your taxable income). Effectively, this increases the income tax for high earners a little.
  • Use a tax calculator to calculate your salary and income tax

Mandatory social insurance

There are four kinds of mandatory social insurance: Pension, unemployment, health, and care insurance. The premiums for these are split (approximately) 50/50 between the employer and employee.

  • Your pension insurance premium is 9.3% of your gross salary (total: 18.7%), assessed on the first ~78k€ of your salary.
  • Your unemployment insurance premium is 1.5% of your gross salary (total: 3%), assessed on the first ~78k€ of your salary. See this unemployment insurance calculator
  • Your health insurance premium is 8.4% of your gross salary (total: 15.7%), assessed on the first ~52k€ of your salary. See this health insurance calculator
  • Your care insurance premium is 1.4% of your gross salary (total: 2.8%), assessed on the first ~53k€ of your salary.

These premiums therefore add up to about 20% of your gross salary; when you add your income tax, it’s not unusual to pay close to 50% in taxes and mandatory insurance premiums (more for high earners).

Examples of gross and net income

On the internet there is a lot of misinformation about taxation in Germany (and other western European countries). People from certain countries seem to be under the impression that all Germans pay more than half of their income in taxes (and then cue the usual rants about “taxes are theft”, “socialism”, etc). The reality is, of course, a little different.

Taking a single person with no children at varying levels of income (“percentile” means how many percent of the population earn less than this person, so someone in the 75th percentile earns more than 75% of the German working population, and earns less than 25% of the working population):

  • A single person making 20,000 € (20k) a year (minimum wage for a full-time job) pays 5% income tax and 20% social insurance, for a total of 25%. Their net income is around 1200 € a month, putting them in the “lower middle class”.
  • A single person making 24k (25th percentile of the income distribution) pays 8% income tax and 20% social insurance, for a total of 28%. Their net income is around 1400 € a month.
  • A single person making 36k (median income, so 50th percentile) pays 14% in income tax and 20% social insurance, for a total of 34%. Their net income is 2000 € a month, putting them into the “middle class” in Germany.
  • A single person making 52k (75th percentile) pays 18% income tax and 20% social insurance, for a total of 38%. Their net income is 2600 € a month.
  • A single person making 75k (90th percentile) pays 25% income tax and 18% social insurance, for a total of 43%. Their social insurance premiums start to level off, as they’re capped for high earners (see above for details). Their net income is 3600 € a month, which is considered “upper middle class” in Germany.
  • A single person making 95k (95th percentile) pays 29% income tax and 15% social insurance, for a total of 44%. Their net income is 4400 € a month.
  • A single person making 130k (98th percentile) pays 34% income tax and 11% social insurance, for a total of 45%. Their net income is 6000 € a month, which is considered “upper class” in Germany.

Therefore, while very high earners approach 50% in deductions (taxes and social insurance), the vast majority of people in Germany pay considerably less. The numbers above also do not reflect the tax deductions which many people qualify for (e.g. for commuting costs, paying people to work in and around their home, or for having children), which lowers their tax rate a bit.

Also, taxes and social insurance premiums should not be conflated - the latter pay for things which, in most cases, benefit the person directly. For example, the health insurance premium ensures that the person can get all medical treatment essentially for free at the point of service, and the pension insurance premium will pay out as a pension when they retire. In other countries without these mandatory social insurance systems, employees would have to put money aside themselves to pay for these things, so it’s important to compare apples with apples when talking about gross and net incomes in different countries.

Church tax

If you’re a member of the following religious denominations, then the state will levy an additional church tax on you, and distribute the revenues to the participating religious groups (think of it as the state collecting membership dues on behalf of the churches):

  • Catholic Christian
  • “Mainline” Protestant Christian (excluding evangelicals, “free churches”, the Anglican church, and others - here is a list)
  • Jewish

Church tax is 8-9% (depending on what state you’re living in) of your income tax (not your taxable income). Members of other denominations (as well as people who don’t belong to a religious group) don’t pay church tax, but will likely be financially supporting their religious communities in other ways (e.g. donations).

When you first register in Germany (the Anmeldung) you have to tick a box if you belong to one of the religious communities which levy church taxes, and then then church taxes will be automatically deducted from your gross salary and investment income.

More info: What is the Kirchensteuer or church tax?

Investment tax

If you have investment income (e.g. dividends, profits from selling stocks) it’s taxed at 25% (plus church tax and solidarity surcharge), with an annual tax-free allowance of 801 € - this tax is automatically withheld by most German banks and investment funds, unless you file a Freistellungsauftrag with them (telling them to account for your tax-free allowance when withholding the tax - but you’ll have to file a tax return at the end of the year anyway to make sure you paid your entire tax bill).

Tax class

In the German income tax system, a portion of your income is withheld by your employer and forwarded on to the tax authorities; these are your income tax pre-payments (Lohnsteuer). The tax classes exist in order to give your employer the necessary information to calculate these pre-payments as accurately as possible (and any discrepancy is resolved when you fill out your tax return, see below).

Singles get tax class 1. Married couples can choose to get tax class 4/4 (which treats both partners equally), or tax class 3/5 (where the partner earning more is taxes less, and the partner earning less is taxed more), and you can choose which one best represents your situation.

However, an important note: your tax class does not change how much income tax you actually owe over the course of the year; it only changes your tax pre-payments. Therefore, the choice isn’t all that important in the medium term (your net income at year’s end will be exactly the same), it only really matters if you expect to receive benefits which are calculated based on your net income, such as Elterngeld.

Tax return

At the end of the year, you can (or must, see below) fill out a tax return to inform the authorities of any income that wasn’t automatically reported to them (e.g. freelance work or rental income), as well as any tax deductions you may qualify for (e.g. if you had expenses directly required by your job, hired someone to work in or around your house, had unusually high medical bills or a very long commute, etc). The tax authorities then use this information to calculate your final tax bill, compare it to what you pre-paid throughout the year (see above), and will reimburse you the difference (if you overpaid) or send you a bill (if you underpaid).

Couples with tax class 3/5 and people with “unusual” income structures (essentially anything that isn’t a single salaried job) must fill out a tax return every year. The deadline is usually around the middle of the following year - so the tax return for the calendar year 2021 must be filed before mid-2022. Anyone else (e.g. many people with tax classes 1 or couples with 4/4) don’t have to fill out a tax return, but it’s generally recommended to do so anyway, especially if you had significant deductible expenses that year, as you’ll get a part of them back through tax deductions if you fill out a tax return.

There are several ways of filling out your tax return:

  • You can use the free government ELSTER portal.
  • There are many programs for PCs (and Macs) which help in filling out your tax return, and they usually cost a few tens of Euros. The most popular ones include WISO, Tax, SteurSparErklärung, and Taxman, although there are plenty more. These are essentially very long questionnaires asking you whether you had any income of type X or expenses of type Y, and which help you in finding the correct values to input. They then send your tax return electronically; usually you don’t have to send paper documentation unless requested.
  • Similarly, there are smartphone apps which do the same thing and cost a comparable amount (although some only ask you to pay if you get a certain amount back as a tax refund). Popular ones include TaxFix, SmartSteuer, SteuerGo, and ilovetax, although there are plenty more.
  • You can join a Lohnsteuerverein. Essentially you pay an annual membership fee (which is usually based on your total income - somewhere around 100-200 €), and in return a tax professional does your tax return for you. You just have to supply them with all the documentation (as above, for your income and any deductible expenses etc).
  • Lastly, you can hire a full-blown tax attorney (Steuerberater) to do your tax return for you. This is similar to a Lohnsteuerverein, except they are more expensive and their fees less transparent. The upside is that they can handle even the most complicated and obscure tax cases (e.g. self-employment, foreign inheritance, complex financial products, income from multiple countries concurrently, double residency, etc), whereas a Lohnsteuerverein is limited to reasonably “standard” cases (salary income with small amounts of rental and capital gains income). This makes a Steuerberater almost mandatory for some people (particularly those who are freelancers/self-employed), and some also offer services in English, which are otherwise a bit hard to find. The filing deadline for people using a Steuerberater or Lohnsteuerverein is also extended considerably, usually by around a year (so the tax return for the 2021 calendar year has to be filed before mid-2023).

Note that any costs you incur in preparing your taxes can be deducted from next year’s taxes, so you’ll get a portion of them back as a tax refund.

Also note that some tax preparation methods (particularly apps) advertise with things like “on average, our users get 1000 € in tax refunds!”. Take these ads with a massive grain of salt, as how much you get in tax refunds (or whether you get a bill) depends almost exclusively on your personal situation: how much you pre-paid in taxes, your tax class, what your actual income was, and what deductible expenses you had. The tax preparation method you choose will probably make only a small difference (if any) to your tax refund/bill.

Other taxes

Other taxes which you may come into contact with in Germany include:

  • Land tax (Grundsteuer), paid by the occupant (tenant or owner) of a property. As a tenant, it’s included in the utility costs (Nebenkosten) which you pay to your landlord.
  • Vehicle tax, which you pay for owning a car. The amount depends on the car’s pollution level and engine displacement. Anything from 20 € to several hundred Euros a year.
  • Dog tax, which you pay for owning a dog. A few hundred Euros a year; more for more dangerous dogs.
  • Value-added tax, which is levied on all goods and services when they are sold (similar to sales tax in the US, but it’s always included in the price you see on the sticker). Nearly always 19%, sometimes 7% (on certain goods and services).
  • The “TV tax” (Rundfunkbeitrag). It’s technically not a tax, but nearly everyone in Germany must pay it, including you. It’s about 200€ a year, and it pays for public TV and radio.

Child benefits

During pregnancy

The newborn child

  • The woman can choose to give birth in a hospital, at home or in a birth house.
  • The woman is prohibited from any work for the first 8 weeks (but get’s 100 % paid)
  • The total time of paid parental leave is 15.5 months (6 weeks before childbirth and 14 months after). The pay is 100% for the first 3.5 months and 66% after that. Two months are reserved to be taken by the father but he is free to take more.
  • The employer has to reserve the job for the parent so they can return to their old workplace after taking parental leave. The employer has to allow them to work part-time if they want

Raising the child

  • Parents get 250 euro per month for having a child until the child is 25 or starts working (Kindergeld).
  • The government guarantees that you will find a place in daycare for every child from their first birthday, it will be either free (like in Berlin, Hamburg) or very cheap
  • If a child gets ill and you have to take care of your child and can’t go to work, the parents can take up to 20 paid child sick days per year per child under the age of 12
  • Free public health insurance for your child until age 25 or their first job
  • Free schools and universities

https://www.eu-gleichbehandlungsstelle.de/eugs-en/eu-citizens/information-center/family-and-children