Whether a native German or an alien working in Germany, you must comply with the country's tax laws. The federal government (Bundesregierung), federal states (Bundesländer), and local governments (Verortsregierungen) all levy taxes (Gemeinden). The Federal Central Tax Office (Bundeszentralamt für Steuern) and the roughly 650 regional tax offices (Finanzämter) work together to administer federal and state taxes. Income tax, value-added tax, corporate tax, and other tax revenues are split between the federal government, the states, and local governments.
Increases In The Standard Rate Of Income Tax
Germany's federal government has levied a 5.5% "solidarity surcharge" tax to fund projects to enhance the economy and infrastructure of disadvantaged areas. The levy is a percentage added to each person's taxable income. The solidarity surcharge tax will be significantly reduced starting January 1, 2021.
When a person's taxable income is above the levels above, a sliding scale is implemented so that the maximum 5.5% solidarity surcharge is eventually only applicable in full for those who are either single and have a taxable income of around EUR 96,850 or who are married and have a taxable income of around EUR 193,700. The total amount of the solidarity surcharge is applied on both capital investment income taxable as a lump sum and employment income taxed at lump sum rates.
Church tax is an additional levy levied on the income of those who belong to legally recognized religious groups. Each individual's rate is between 8% and 9%, with the difference determined by the federal state they call home.
Indemnity From Lagniappe
In case of a medical emergency or job loss, for example, citizens of Germany may rely on a robust safety net.
You must pay into the German social security system if your annual salary exceeds a specified threshold. This necessitates your participation in automated payments to various insurance programs. The following are examples of such coverage’s:
Insurance required by law; covers medical care, including visits to the doctor and the cost of various medications and treatments. In addition, the law requires insurance to cover nursing care costs if an individual becomes permanently sick and unable to work. The elderly population is particularly vulnerable.
Pensions for retired workers are guaranteed by law thanks to pension insurance. Your previous salary and length of time spent working in Germany are the primary factors in establishing the sum.
This insurance is required by law and helps pay for medical care and rehabilitation, so injured workers may return to work after an accident or sickness.
Unemployed persons who meet the requirements of the law and get unemployment benefits receive an income for a certain amount of time. The standard requirements include actively seeking work and maintaining continuous insurance coverage for the previous 12 months.
Joining social security requires a regular deduction from your paycheck. Your company also contributes a certain amount. Contributions are deducted automatically from your gross pay and sent directly to the insurance provider. Your job status immediately enrolls you in several insurance programs covering retirement, long-term care, accidents, and unemployment. Except for those who have health insurance, there are no private providers.
Identical To A Social Security Card
A social security card and your new number will be sent to you after you've been hired. Don't forget to share this contact info with your boss. Sometimes, you will need your social security number, so keep the card secure. The number will stay the same even if you change jobs. German Pension Insurance will provide a new card if you misplace yours (Deutsche Rentenversicherung).
To see whether you have overpaid income tax, the state will do a check after the end of the calendar year. To achieve this, you must file an income tax return with the tax agency, including your yearly earnings and your employer's amount of tax withheld.
For example, if you have more than one employee throughout the year, you must file a tax return. However, this is usually done voluntarily. Even if doing your taxes isn't required by law, you should probably do it since most individuals receive money back from the government.
Individuals In Germany Are Required To Pay Income Tax
No matter where you call home, you must report and pay taxes on German and foreign income if you have German residency. If you are not a resident of Germany, you must still pay income tax, but only on the money, you make in Germany.
When It Comes To Paying Income Tax In Germany, Who Is Exempt?
In Germany, everyone must pay tax on income beyond the threshold for a tax-free allowance. However, some individuals may qualify for more significant deductions and refunds. In addition, some disabled persons are eligible for exemptions or reductions in vehicle taxes, care allowances from the government, and even legal protections against being fired. All of this contributes to a lower tax liability for them.
A German retiree's pension benefits, if more than their exemption, are subject to taxation.
Profits From Rentals Are Subject To Taxation
Unless exempted by a double taxation treaty, rental income in Germany is liable to income tax. Landlords are required to file a tax return reporting their total rental income each year. A possible additional tax of 5.5% of rental revenue is the solidarity fee. Mortgage payments, upkeep, renovations, and repairs are all legitimate deductions from rental income.
If you have only held a buy-to-let property for a decade or less, you may have to pay capital gains tax on the profit you earn when you sell it.
Compensation Via In-Kind Contributions (Geldwerter Vorteil)
Any "benefit in kind," such as the use of a company vehicle, may also be subject to taxation. Including VAT, company automobiles are subject to a tax of 1% of the list price. Even shares received as bonuses, or other forms of compensation must be reported and paid on.
This tax supplement of 5.50% is due in addition to regular income tax, capital gains tax, and corporate tax rates. It was first implemented in 1991 to help pay for things like the pensions and debts of the old East German government and other expenditures associated with German reunification.
The surcharge will be eliminated for 90% of taxpayers once the "Soli threshold" for income tax is significantly raised in January 2021. Only those with a gross annual income of 61,700 euros or more or couples filing jointly will be subject to it.
Credits Against Taxation
When filing taxes in Germany, you may take advantage of a broad range of deductions. Furthermore, you may be eligible for tax credits like those for children. These are examples of deductible expenses:
· Work-related costs (unless already reimbursed by an employer)
· Expenses Related to Moving
· Spousal support payments made after a divorce or legal separation
· Donations to German nonprofit organizations
· The expense of hiring a babysitter or daycare center
· Costs associated with academic training
· Taxes for Social Security
· Church levy
· Charges related to a mortgage (buy-to-let mortgages only)
You must file a tax return annually to take advantage of any tax breaks. Even though it is not required, many German workers file one to avoid paying too much in taxes.
A German tax calculator will help you estimate how much of your paycheck you'll keep each month if you're having trouble imagining how this will affect your income. Use this income tax calculator to estimate the amount of income tax you will owe (in German).
Annual Tax Return
Make sure you've been paying the right amount of tax by filing a tax declaration with the Federal Central Tax Office at the end of the financial year (which in Germany runs from January to December). The tax agency will decide whether you are eligible for a refund based on the information you and your employer provide, the deductions you claim, and the income tax you paid in the previous year (or need to pay more). Then, you may either print out the necessary paperwork and hand it to the tax office or use the electronic filing system (ELSTER or Elektronische Steuererklärung).
Visit our Yearly tax return page to learn whether filing an annual tax return is mandatory for you, the types of deductions available to you, and the application procedure.
Instructions For Filling Out A German Tax Return
If workers do not earn any income outside their regular job, they do not need to file a tax return. This is because employees' wages are already taxed at the source because of payroll withholding. The same holds for social payments and other required insurance premiums.
However, workers who are self-employed in Germany are required by law to file an annual tax return.
Germany's Income Tax Filing Dates
After the close of the tax year, which coincides with the calendar year, taxpayers in Germany must file their annual income tax returns. Since the expected due date is July 31, your 2021 return is due on July 31, 2022. The deadline for having a tax expert complete your return is December 31.
Due to the COVID-19 epidemic in Germany, the application deadlines were extended in 2021, and the German government may provide further extensions in 2022.
It is the responsibility of American ex-pats to submit German tax returns if they have any source of income while living in Germany. In addition, all residents of the United States must submit an annual tax return. The United States of America is the second nation in the world to impose a double tax on its citizens, regardless of where they live or make a living (Eritrea being the other country).
A double taxation treaty between Germany and the United States might drastically reduce or even eliminate your tax bill. In this scenario, however, you should speak with a professional tax expert for assistance since the double taxation agreement might be difficult to understand and apply.
Documents Required For Filing German Income Taxes
You may use BZSt's official program on paper or digitally to file your German tax return. A standard tax form is required of everyone who files an income tax return (Mantelbogen). In addition, depending on your specific situation, you may need to fill out one or more of the following supplementary forms. Visit Mein ELSTER (in German) to submit documents electronically. Online explanatory forms (in German) are also available to assist further with online filing.
Germany's Tax Exemptions And Deductions
One way to boost one's chances of receiving a tax refund is to claim all allowable deductions and exemptions. A single person in 2022 may keep all income up to €9,984 tax-free, while a married couple filing jointly can keep all earnings up to €19,968 tax-free. Over and above that, you'll have to pay income tax.
You may deduct up to 20% of your gross income for charitable contributions made in Germany. In addition, up to €13,805 may be deducted if you pay alimony to a former spouse or partner.
If a taxpayer's kid attends a private school in Germany, that cost may be deducted from their taxes. You may deduct 30% of your tuition as an allowable expenditure and any child allowance or daycare charges for children under 14. When filing their taxes, employees may deduct work-related costs that have been recorded and for which their employer has not paid them.
Conventions to Avoid Double Taxation
By preventing individuals from being taxed twice on the same income, double taxation agreements help promote economic growth and stability. For example, an individual might, in theory, be subject to taxation in two jurisdictions at once if they commute across international borders.
Numerous nations throughout the globe have signed double taxation agreements with Germany. The Federal Tax Office has a complete list of countries on its website. This implies that your tax bracket and the amount of tax you pay in Germany will be determined using your international income. The German government will not tax you again on the money you've previously had taxed elsewhere.
A foreign income tax credit enables you to deduct the amount of foreign income tax you've paid from your German income tax bill if your home country and Germany don't have a double taxation agreement. But, again, this is something that a tax advisor can assist you with.
Late tax filing and payment, failure to submit a tax return, and failure to report income carry penalties of up to 50,000 Euros.