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German personal income tax ABC (Part 1)

Personal Income Tax

Germany has a rather complicated taxation system and personal income taxation is no exception. There is a progressive personal income tax rate starting from zero and ending at 45% for high-income individuals earning more than 260 thousand euros a year. The tax rates 42% and 45% are flat within their respective brackets whereas within the 9,408-57,051 euro bracket the tax rate rises geometrically from 14% to 42% (see below).

Personal Income Tax Rates in Germany for 2020

Singles (EUR) Married Couples (EUR) Tax Rate
0 – 9,408 0 – 18,816 0%
9,409 – 57,050 18,817 – 114,101 Starting at 14% and geometrically increasing to 42%
57,051 – 270,500 114,102 – 541,000 42%
Above 270,501 Above 541,002 45%

Solidarity Surcharge

There is also an additional type of income tax, the so-called solidarity surcharge of 5.5%, which comes on top of the regular income tax but is not paid in full or at all by low-income individuals. That is, individuals who pay less than 972 euros a year in taxes are exempt from the solidarity surcharge while for those who pay between 973 – 1,340 euros in annual taxes the solidarity surcharge increases geometrically from zero to 5.5%. Solidarity tax was introduced in 1991 as a temporary measure to help finance the costs of German unification and despite hefty criticism in recent years there still are no immediate plans for removing it.

Tax Deductions

The German personal income tax law allows for a number of tax deductions, both related and non-related to taxable income, such as training and commuting expenses, dual household costs, work-related insurance costs, contributions to voluntary health insurance and pension schemes, church tax and a variety of expenses related to bringing up children (e.g., childcare, school fees).

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