Suffice it to say, the German tax system is complex. There are a maze of deductions, special exemptions, tax breaks for families, and much, much more. If you think you are entitled to get some money back, and most taxpayers are, you should seek professional advice from an income tax association (Lohnsteuerverein) or a tax consultant (Steuerberater). They will either charge you a flat fee or a fee based on your total income - but this can be deducted in the next year as an expense.
Income tax for an Individual
Taxation of an individual's income is progressive, meaning the higher the income, the higher the rate of tax payable. An individual is liable for income tax on money earned as an employee or as a self-employed person. Single taxpayers are liable to pay tax if they earn more than 7,664 euros per annum and the amount is doubled for married taxpayers.
Tax rates for an individual vary between 15 percent and 42 percent depending on income. Your income tax card (Steuerkarte), which was mailed to you shortly after you registered with the German authorities, should be given to your employer who will return it to you at the end of the year with the necessary information for your income tax return. Along with the tax return itself, the income tax card must be returned to the tax office (Finanzamt). The filing deadline is the end of May of the year following the tax year concerned, but it is possible to get an extension. Annual income tax returns can also be submitted online using the Elster service (www.elster.de) For more extensive information, consult the tax office website at www.finanzamt.de.
In addition to income tax, you will be liable for a wide array of social contributions. If you pay social contributions for less than five years (60 months), you might be able to get a refund on the employee portion (not the employer's contribution) of the retirement insurance only. This does not apply for your employee contributions to both unemployment or the nursing care insurance. If you reside in Germany for more than 60 months, you are entitled to German retirement benefits.
Retirement, Unemployment and Nursing Care Insurance
The biggest chunk of the total social contributions pays for your retirement insurance (Rentenversicherung), which represents 19.5 percent of your monthly income. Unemployment insurance (Arbeitslosengeld) amounts to 6.5 percent of your gross revenue, while the long-term care insurance (Pflegeversicherung) represents 1.7 percent or 1.95 percent for taxpayers who do not have children.
The enormous job of merging the two Germanys was in part financed by this tax, which is a surcharge of 5.5 percent of the normal income tax paid. Even though unification was over 20 years ago, this tax remains the lasting legacy. The tax is levied on all corporations and individuals.
If you are member of either the Catholic or Protestant church, you will also be liable for tax equal to 8-9 percent of the income tax you pay. For a more detailed discussion of this tax, please see the chapter on Churches and Religion