What types of income oblige me to pay an income tax?

Income tax ("Einkommensteuer") is the most significant tax collected in Germany. It makes up most of the state revenue and is paid by both employees and self-employed individuals, so it applies to almost everyone. There are seven types of income for which you have to pay an income tax in Germany. These are incomes generated through:

  • self-employed work
  • employment
  • business entities' ventures
  • agriculture and forestry
  • capital assets
  • rent and lease
  • and other types of income mentioned in the income tax law, for instance, pensions.

There are also earnings on which you do not have to pay any income tax. These include parental allowance ("Elterngeld"), unemployment benefits', BAföG and scholarships. The same applies if you have a mini-job or your income is below the so-called basic exemption level ("Grundfreibetrag"). The basic exemption level is adjusted annually and currently amounts to € 9744 (As of 2021). If your income is below this amount, you do not have to pay income tax. Otherwise, however, anyone who resides in Germany and earns money must pay income tax.

Please note: If you have registered your place of residence in Germany, you must pay taxes. Taxation applies to all of your income, including what you may earn abroad. However, there are so-called double taxation agreements ("Doppelbesteuerungsabkommen") between Germany and some other countries to protect taxpayers from double-taxation. You can find these double taxation agreements (in German and English) on the website of the Federal Ministry of Finance

How much income tax do I have to pay?

The amount of income tax you pay depends on how much you earn. In principle, the more you make, the more income tax you pay. You can calculate your due income tax by an online tax calculator, for instance, the one provided on the website of the Ministry of Finance. On www.brutto-netto-rechner.info, you will find a tax calculator, which you can also use in English.

Do I have to pay income tax as a pensioner, student, "mini-jobber" or unemployed individual?

Whether you pay income taxes as a pensioner depends on the amount of your pension and other incomes (for instance, from rent or interest). If your income is above the basic exemption level ("Grundfreibetrag"), you must pay tax on your pension. The same applies to students who earn more than the basic exemption level. People with mini-jobs often make up to € 450 per month. If you do not earn more, in principle, you do not have to pay any taxes as a "mini-jobber". Those who receive unemployment benefit are also exempt from paying taxes. Nevertheless, you need to specify the amount of unemployment benefits you receive when filing a tax return.

Do I have to file a tax return?

If you have incomes through self-employment, you are obliged to file a tax return. The regulations are somewhat different for employees: they often do not have to file a tax return because their employer automatically deducts income tax from their salary ("Lohnsteuer") and directly transfer it to the Tax Office every month. There are, however, some exceptional cases, i.e. when:

  • you and your spouse are working and have chosen a combination of tax brackets III and V. For more information on tax brackets, see the section "What are tax brackets?".
  • you or your spouse have applied for allowances ("Freibeträge") at the Tax Office, for instance, due to enrollment in a vocational training programme, disability or travel expenses.
  • besides your regular salary, you have additional incomes (higher than € 410 per year) from which income tax has not been deducted, for instance, from property rental.
  • you have collected wages from several employers without the deduction of a lump-sum tax.
  • in addition to your regular salary, you have received wage compensation benefits ("Lohnersatzkosten"), for instance, parental allowance ("Elterngeld"), sickness benefits ("Krankengeld") or unemployment benefits.
  • you have divorced and remarried in the same year.
  • you have received severance pay.
  • you have a loss carryforward from previous years.
  • you have a spouse with limited tax liability who lives in another EU country and is registered in your records for the electronic income tax deduction.

In the cases mentioned above, despite being employed, you must file a tax return. Even pensioners may be required to file a tax return. That is the case if their total income exceeds the basic exemption level ("Grundfreibetrag") or when the Tax Office specifically demand them to pay taxes.

Is it worthwhile to voluntarily submit a tax return?

Most employees do not have to file a tax return. But it may be worthwhile to voluntarily do so because you can deduct certain expenses from your "taxable income" and get some money back from the Tax Office. To do so, you need to file a tax return to let the Tax Office know about your expenses. The Tax Office then calculates these expenditures and subtracts them from your annual income- you only have to pay taxes on what is left after the deduction, i.e. your so-called taxable income ("zu versteuerndes Einkommen"). To learn more about the process, visit www.vlh.de.

The tax benefits granted by the state can be divided into three main categories:

  • Advertising costs ("Werbungkosten"): These are expenses related to your job, for instance, commuting costs or costs of further education and training.
  • Special expenses ("Sonderausgaben"): These are expenditures, such as donations, health and long-term care insurance contributions or childcare costs. You can read more in this regard in the section "What types of tax relief are there for families?".
  • Exceptional financial burdens ("Außergewöhnliche Belastungen"): These are unexpected costs that you have to bear, for instance, due to illness.

You need to specify these expenses in your tax return. You do not have to submit the supporting documents such as bills, but you must preserve them as the Tax Office may ask for them later. . If you cannot do your tax returns yourself, hire a tax consultant, or present your supporting documents to a Wage Tax Assistance Association ("Lohnsteuerhilfeverein") and ask for their support.

To facilitate the tax return process (for you as well as the Tax Office), you can claim so-called lump sums or "Pauschalbeträge" without having to provide supporting documents. You can learn more about the different types of "Pauschalbeträge" on www.vlh.de.

What types of tax relief are there for families?

There are various types of tax relief designated to support families:

  • Parental allowance ("Elterngeld"): If you decide to reduce your working hours after the childbirth, the state will provide you with financial support through parental allowance. Its amount depends on your income, but you can increase your parental allowance by changing your tax bracket ("Steuerklasse"). As a married couple, you need to inform yourself about relevant tax issues as soon as you learn about the pregnancy. In principle, the spouse who goes on maternity leave ("Babypause") should choose tax bracket III. Keep in mind the application for changing tax brackets must be submitted no later than seven months before the start of maternity protection ("Mutterschutz")- so you need to act quickly.  You can learn more in this regard on the website of the Stiftung Warentest. Please Note: Despite parental allowance being exempt of tax, you need to mention it when calculating your tax rate.
  • Child allowance/Children's allowable deduction ("Kindergeld"/"Freibeträge für Kinder"): Parents receive at least € 219 per child in child allowance, which has increased on 1 July 2019. You must fill in an submit an application for child allowance (“Kindergeld-Antrag”) to the Family Benefits Office ("Familienkasse")- the application form is also available in English on www.howtogermany.com. Read more in the Child Benefit leaflet published by the Employment Agency. In another brochure published by the Employment Agency, you can also learn when refugees have a claim to child benefit. People with low income can also apply for additional child benefits ("Kinderzuschlag"). You can also find a list of prerequisites for "Kinderzuschlag" (in English) on the website of the Employment Agency. Child allowable deduction ("Kinderfreibetrag") can also be an option- just keep in mind that you can either receive child allowance ("Kindergeld") or Child allowable deduction ("Kinderfreibetrag"). Fill and submit one attachment form “Anlage Kind“ per child along with your tax return. Your Tax Office can provide you with the attachment form “Anlage Kind“- you can also find it online and download it, for instance, from steuertipps.de. Then the Tax Office will calculate to see which combination benefits you more.
  • Childcare costs/ training costs: The state provides you with support for childcare costs by allowing you to deduct two-thirds of the childcare costs from your taxable income as special expenses ("Sonderausgabe"). You may also be able to claim tax exemption for the costs of your child's maintenance and his/her vocational training expenses as exceptional financial burdens ("Außergewöhnliche Belastungen"). In addition, if your adult child does not live with you, you need to inform yourself about the designated allowance to cover particular needs which may occur during your child's vocational training ("Freibetrag zur Abgeltung eines Sonderbedarfs bei Berufsausbildung").
  • Allowance for single parents: If you, as a single parent, are entitled to child benefits ("Kindergeld") or the child allowable deduction ("Kinderfreibetrag"), you can also claim the allowance for single parents (“Entlastungsbetrag für Alleinerziehende”).
  • "Ehegattensplitting": Spouses and people joined a so-called civil partnership ("Lebenspartnerschaft") can make a joint tax return. The so-called "Ehegattensplitting", can be particularly beneficial if one partner earns significantly more than the other. To use this option, you should hand in a joint tax return and on page 1 of the form, mark the so-called "Zusammenveranlagung" ("joint return").
  • Lump-sum care allowance  ("Pflege-Pauschalbetrag"): If you care for dependents, you can claim a lump-sum care allowance for tax purposes. That means a lump-sum amount is deducted from your taxable income as care costs.

To find out more about tax reliefs for families, visit the family portal of the Ministry of Family Affairs.

What can I deduct from my taxable income as a self-employed individual?

The tax benefits granted by the state can be divided into three main categories:

  • Advertising costs ("Werbungkosten"): These are expenses related to your job, for instance, commuting costs or costs of further education and training.
  • Special expenses ("Sonderausgaben"): These are expenditures, such as donations, health and long-term care insurance contributions or childcare costs. You can read more in this regard in the section "What types of tax relief are there for families?".
  • Exceptional financial burdens ("Außergewöhnliche Belastungen"): These are unexpected costs that you have to bear, for instance, due to illness.

You need to specify these expenses in your tax return. You do not have to submit the supporting documents such as bills, but you must preserve them as the Tax Office may ask for them later. 

To facilitate the tax return process (for you as well as the Tax Office), you can claim so-called lump sums or "Pauschalbeträge" without having to provide supporting documents. You can learn more about the different types of "Pauschalbeträge" on www.vlh.de.

Furthermore, as a self-employed person, you can also deduct many professional expenses from your taxable income as "operating costs" ("Betriebsausgaben"). Professional expenses may include a new laptop, commuting or service costs, travel expenses, mobile phone bills, office supplies that you need for work, or the general costs of your office. Smaller purchases can be deducted from your taxable income immediately, more costly items are often to be deducted over several years. By planning such purchases with forethought, you can save some taxes. As a self-employed professional, you may need the help of a tax accountant who can accurately tell you what you can and cannot deduct from your taxable income. Keep in mind that you have to pay for such service- but you can deduct these costs from your taxable income the following year.

Where and how can I file my tax return?

If you have a registered business, earn from agriculture and forestry or are self-employed, you must submit your tax return electronically via the internet portal of the German financial administration Elster. You need to register and verify your identity with your tax ID number and an e-mail address. Keep in mind no to postpone the registration to the last minute as the authentication process takes a few days. You can also submit your tax return electronically with a paid programme or application like smartsteuer. Such paid tools are easier to use than Elster. 

As an Employee, you can submit your tax returns electronically if you choose so unless you have other incomes/income progressions- for instance, when you receive a parental allowance or unemployment benefits, exceeding € 410 per year in addition to your wages. Then you, too, are obliged to file your tax return (electronically). You can also submit your tax return by hand and deliver it per post or in person. You will find the appropriate forms in your Tax Office or online at formulare-bfinv.de. Visit Behördenwegweiser to find the Tax Office responsible for you.

Please note: In principle, you do not need to send the receipts associated to your tax return to the Tax Office. But you must preserve all the evidence and documents as the Tax Office may demand proof if any questions arise until up to ten years after your tax return.

What deadlines do I need to keep in mind?

If you are required to file a tax return, you must submit it by 31 July of the following year. In case you hire a tax consultant or Wage Tax Assistance Association ("Lohnsteuerhilfeverein") for your tax return, you will have some more time. Then, in principle, the last day of February of the second following year is the ultimate deadline for filing your tax return.

Please Note: As an exception, you have more time to submit your tax return for 2020. The deadline has been extended to November 1, 2021 (or November 2, 2021 in Baden-Württemberg, Bavaria, North Rhine-Westphalia, Rhineland-Palatinate, Saarland). If you submit your tax return with the help of a tax relief association or a tax consultancy office, your deadline for submitting your tax return for 2020 will be further extended until May 31, 2022.

In exceptional cases, you can request a deadline extension from the Tax Office in writing. In the letter, you need to justify the extension and specify a new deadline. The Tax Office can (but does not have to) agree with a deadline extension you suggest.

If you file your tax return voluntarily, you have four years to submit your tax return.

What happens if I submit my tax return too late?

If you miss the deadline for filing your tax return, the Tax Office may set a so-called delay fine ("Verspätungszuschlag"). Whether you are going to be charged such fine is at the discretion of Tax Office staffs. However, if you submit your tax return 14 months after the end of the tax year you are reporting, you must pay the delay fine, which can increase rapidly. According to §152 Tax Code, the fine amounts to 0.25% of the monthly tax deducted due to advance payment and the applicable deductibles- but the minimum fine is € 25 per month.

Furthermore, the Tax Office can charge you an administration fine ("Zwangsgeld") which is usually between € 100 to € 500 euro. Such a fine notice is sent per mail.

What happens if I do not pay taxes?

You are solely responsible for paying your taxes and duly informing the Tax Office about your income. The only exception is the payroll tax ("Lohnsteuer"), which is automatically deducted from employees' salary by employers. Refusing to pay your taxes entirely or partly or trying to cheat the Tax Office is a crime known as tax evasion ("Steuerhinterziehung"). Tax evaders face fines and, in particularly severe cases, imprisonment of up to 10 years. If you are not sure you can handle your tax declaration correctly, you should seek help from an expert. Find out more in the section "Where can I get help with my tax return?".

Where can I get help with my tax return?

If you do not wish to file your tax return personally via Elster financial management programme, you have several options:

  • The cheapest option is to find a tax declaration software. Several providers offer such applications, some of which, including SteuerGo, is available in several languages.
  • You can seek help from a wage tax assistance association ("Lohnsteuerhilfeverein") or a tax consultant in your district. You can find a tax consultant, for instance, via the website steuerberater.de. Tax consultants' fee in Germany is regulated by the tax consultants' service fee regulations ("Steuerberatergebührenverordnung"). The fee, however, depends mainly on the amount of work. A wage tax assistance associations' help often costs less than a tax consultant's service, but these associations are not permitted to advise the self-employed and businesspeople ("Gewerbetreibende"). If you are an employee, to benefit from the support of a wage tax assistance association, you must join the association and pay a membership fee. The amount of such fee depends on your level of income. To find a wage tax assistance association in your area, visit the website of the Federal Association for Wage Tax Assistance ("Bundesverbands Lohnsreuerhilfe e.V.). Using Professional help for your tax return may initially cost you some money. But it will also most probably save you taxes and protect you from mistakes, particularly as a self-employed individual.

Important: You can deduct the costs of tax software, the wage tax assistance association membership fee, and your tax advisor's fee from your taxable income.