Tax deductions

One often encounters high tax deductions while working in Germany. However, it is not an easy job to analyse for what and how much is the amount one pays to the government. This post will help to clarify this information for foreigners working or who wish to work in Germany.

How much?

• An income of above €8,354 is taxable (€16,708 for a married couple)
• An income of above €52,882 for a single person (€105,764 for a couple) is then taxed at a rate progressively increasing from 14% to 42%
• Incomes from €52,882 (€105,764) up to €250,730 (€501,460) are taxed at 42%
• Incomes over €250,731 for a single person and €501,462 for a married couple are taxed at 45%

For what?

There are several components which constitute the overall tax percentages mentioned above. These components are listed and explained below.

• Solidarity Surcharge (5.5% of income): To cover the costs of integrating the states of the former East Germany
• Obligatory Pension Scheme (9.35% of income): To secure income even after retirement
• Unemployment insurance (1.5% of income): To provide a fixed amount during the period of no-job
• Health insurance (8.2% of income): To cover hospital, doctor or other medical expenses
• Disability insurance (1.425% of income): To secure income in case of disability occurrence
• Wage tax: work tax

Some more information...

Tax classes

•  class I = single
• class II = single parent
• class III = married and spouse has no income or lower income
• class IV = married and similar income to spouse
• class V = opposite of class III, i.e. this is the class your lower earning spouse has if you have III
• class VI= for a second job 

Image source: http://www.cambodiaconsulate.ch/deutsch/investment/taxation/index.html, http://www.imod.co.za/2014/10/20/retirement-tax-changes-postponed/