Pay, Salary and Income

There are a number of terms in Germany for the remuneration a person receives for working: "Entgelt", "Verdienst", "Einkommen", "Gehalt" and "Lohn". In this manual we will use the terms "Einkommen" (income) and "Gehalt" (salary). Employment contracts generally stipulate a gross income, whereby they do not always have to name a specific amount but instead may refer to a corresponding salary group in a collective bargaining agreement. Taxes and social security contributions are deducted from the gross income at source by the employer. What you actually receive, therefore, is the net income. Gross and net income are listed in the salary slip ("Gehaltsabrechnung").

Social Security Contributions

The right to be insured against sickness, accidents, unemployment, old age and nursing requirements is financed by the payment of social security contributions by employees and employers as well as through state subsidies. The monies paid monthly for health, unemployment, pension and care insurance are called social contributions ("Sozialabgaben"). The amount paid depends on the level of income. The employer and employee each pay half the total amount. The employee part is deducted from the gross wages and is then paid by the employer along with their contribution to the insurers.

Taxes

Income Tax

The gross income is taxed in Germany. The level of taxation depends on the size of the gross income (progressive tax). It also depends on the family status of the employee. There are six "tax classes" (I-VI). The tax class applicable depends on whether a person is married, has children or has a "second form of income". If a household contains two partners who are both working, the combination of tax classes may offer large benefits. The tax classes and status of family, children, etc, are listed on the tax card, which is obtained from the local authorities ("Stadtverwaltung").

The tax card is given to the employer who writes in the yearly income and other factors at the end of the year. The taxes are deducted automatically from the gross monthly income. At the end of the year employees must make a tax declaration ("Lohnsteuerjahresausgleich") and hand in the tax card to the tax authorities. All sources of income (e.g. rent and interest) that a person had in the previous year are then added up and added to the taxes paid. In addition there are many "tax-free allowances" ("Freibeträge") and possibilities to make tax "deductions". In some cases, people get money refunded from the finance office at the end of the year.

Because the German tax system is complicated, it can be worthwhile getting advice from an income tax association ("Lohnsteuerverein") or a tax consultant. The finance offices are also obliged to provide information.

You can receive more detailed information from your local finance office or a tax consultant, as well as online at www.finanzamt.de. The finance ministry also publishes a brochure, "Steuern von A bis Z", which can be downloaded at www.bundesfinanzministerium.de.

Church Tax

If you are a member of the Catholic or Protestant Churches, you have to pay church tax in Germany. Members of the Jewish community pay the Jewish culture tax ("Kultussteuer"), which corresponds to church tax. There is no tax for members of other religions.