As is the case in most countries, the German tax system is complex. There is 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). For their services they will charge you either a flat fee or a fee based on your total income – but this can be deducted as an expense in the next year on your tax return.
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. Like many European countries, Germany has a relatively high income tax rate. But this is the price you pay for good roads, quality public schools, great healthcare, tuition-free public universities and a broad array of social programs. Tax rates for an individual start at only 14 percent, but the 42 percent tax bracket is reached if annual income exceeds € 55,961.
Shortly after you register with the German authorities, you will be issued a Tax Identification Number (Steueridentifikationsnummer). This number must be used in all correspondence with tax authorities and also entered on your income tax return. 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).
Retirement, Unemployment and Nursing Care Insurance
Generally speaking, social welfare contributions are shared just about equally between employer and employee. The biggest chunk of total social welfare contributions pays for your retirement insurance (Rentenversicherung), which represents 18.6 percent of your monthly income (2019; half paid by you and half by your employer). Unemployment insurance (Arbeitslosengeld) amounts to 2.5 percent of your gross wage, while nursing care/long-term care insurance (Pflegeversicherung) represents 3.05 percent.
The enormous job of merging the two halves of the country after German Unification was in part financed by this solidarity tax (Solidaritätszuschlag), which is a surcharge of 5.5 percent of your income tax bill. The tax is levied on all corporations and individuals. There has been some half-hearted debate about abolishing the solidarity surcharge, but that seems unlikely in the near future.