Transportation costs
Depending on how you travel to work and how far your home is from your workplace, you may be able to deduct your transportation costs from your income tax. Save your public transportation passes or receipts.
Understanding Tax Benefits in Germany for Foreigners
Taxes are a foreign concept to most people, no matter the country. But the system for paying taxes in Germany is pretty straightforward, making the lives of expats in Deutschland just a bit easier. Before jumping through all the hoops to file a tax declaration, it’s important to do your research. First, consider if you actually need to file. Once you’ve decided that you need to, or that you’d like to, then you can figure out which tax class you belong to. Finally, think about whether you’re ready to file them yourself, or if you’d like a little professional help. Keep reading to find out everything you need to know about the tax system in Germany.
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An Introduction to Income Tax in Germany
Key Features of the German Tax System
The German tax system is known for its complexity. Here are some key features:
- Progressive Tax Rates: Germany employs a progressive tax system, meaning that tax rates increase with higher income levels. This ensures that those with higher incomes contribute a larger percentage of their earnings in taxes.
- Up to €11,604 -> 0%
- €11,605-66,760 -> 14-42%
- €66,761-277,825 -> 42%
- €277,826 and above -> 45%
- Income Splitting for Married Couples: Married couples can benefit from income splitting, which allows them to combine their incomes and be taxed at a lower average rate. This often results in significant tax savings.
- Solidarity Surcharge: An additional tax, known as the solidarity surcharge (Solidaritätszuschlag), is levied on top of the income tax. It was originally introduced to fund the reunification of Germany and is still in effect for higher income brackets.
- Church Tax: Members of certain religious communities, such as the Catholic and Protestant churches, are required to pay church tax. This tax is collected by the state and then distributed to the respective religious institutions.
- Social Security Contributions: Apart from income tax, employees and employers in Germany are required to make social security contributions, which fund health insurance, unemployment insurance, and pension plans.
- Tax Deductions and Allowances: The German tax system offers various deductions and allowances that can reduce taxable income. These include deductions for work-related expenses, childcare costs, and charitable donations.
- Tax Returns and Assessments: Taxpayers must file annual tax returns, declaring their income and any deductible expenses. The tax authorities then assess the returns and issue a tax assessment notice, detailing the amount of tax owed or the refund due.
Identify which German tax bracket you belong to
There are six possible classifications for your income tax in Germany. These classes will determine the tax rate you’ll pay on your salary each month. Check the table to see which one applies to you.
- Single, widowed, divorced
- Single parent
- Married, the higher-earning spouse
- Married, earning the same as your spouse
- Married, the lesser-earning spouse
- Working two jobs
For married expats, the Steueramt (Tax Agency) will usually classify both partners in Tax Class 4 by default, if no salary information is provided. However, it might be in your best interest to clarify which spouse earns more; you could be eligible for a larger tax rebate by adjusting your tax classes.
The majority of single expats paying taxes in Germany will be registered in Tax Class 1. However, if you’re earning money from more than one source, you’ll be in Tax Class 6.
Registering your income tax in Germany
Today, there are plenty of tools and resources to help expats file their taxes in Germany. If you’re the DIY type, try your hand at ELSTER, Germany’s online tax declaration tool. Like TurboTax or other self-service tax products, this is the simplest tool used by Germans to get their tax declaration filed. But if your German is a little rusty, you may prefer other programs. Check out Wundertax for an English solution – they offer a tool to make taxes for expats in Germany a little simpler. Taxfix.de offers the same.
If you’re not sure about filing them on your own, never fear. You’ve got two other options: you could get a private tax advisor (Steuerberater) or join the Lohnsteuerhilfeverein.
A tax advisor can offer you a more tailored solution but will often cost a bit more. However, if you have more specific questions, multiple sources of income or a complicated case, you might consider finding a Steuerberater to help you get your taxes filed.
If you’d like to have someone in your corner to answer your questions year-round, the local Lohnsteuerhilfeverein can get your taxes in Germany sorted and address all of your concerns. It’s an organization that helps its members with all sorts of tax-related issues, and you can become a member by paying a monthly fee based on your annual income. This option might be attractive if you’d like more support at a lower price.
Extra tips: The best deductions for your taxes in Germany
Education and training
If you’ve taken any classes, seminars, or online courses this year, you can deduct them. The same goes for any other training materials you may have purchased, e.g. textbooks, workbooks, etc.
Work tools
Did you purchase a new laptop? It could be deducted. Did you upgrade your phone? That could be deducted. When deciding whether something you use privately counts as a work expense, the rule is: did you use this tool professionally more than 50% of the time? If you can defend this claim, write it off.
Job search costs
If you traveled within Germany while pursuing a new job, those travel costs can be written off. This includes train tickets, rented cars, flights, and hotels.
Childcare
When your children are being cared for while you’re at work, daycare or Kita are considered deductible expenses.
Your home office
Working from the couch? Calculate how much of your total flat is used as a “home office” – maybe your living room, for example – and use that to determine the price of your rent for your home office. Additionally, don’t forget to add in the cost of utilities for that square footage!
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