Germany income tax for foreigners

Tax is rarely simple — and if you're a foreigner working abroad, navigating an unfamiliar tax system can be an additional challenge. However, understanding your tax liabilities is essential — getting it wrong can prove a costly hassle.

This guide is a resource for you to get started, but it shouldn’t be taken as financial advice. Seek an accountant or financial advisor for a hassle-free tax filing.

📑 Table of contents
What income is taxable in Germany? Who has to pay income tax in Germany? What’s the tax rate in Germany? German income tax exemptions and deductions Is there a US-Germany income tax treaty? How to pay your income tax in Germany Pay for your tax return from abroad with Wise

What income is taxable in Germany?

Let’s start with the basics — what is the income tax in Germany based on?

When it comes to German tax, income includes¹:

• Employment earnings
• Money from trade and business
• Rental income
• Money made from investments
• All sorts of other sources of income like annuities and royalties

Taxable income — in short — is the total income after deductions and eligible expenses, from each of the broad categories listed above.

The process of submitting your tax return can be a bit complicated, particularly if you have multiple income sources.

Many people use a tax consultant, called a Steuerberater, to help them sort their tax affairs. They can also submit the tax return on your behalf, making the process much simpler.

Who has to pay income tax in Germany?

How you’re taxed depends on your personal circumstances. To figure out what you'll owe, you first need to know your tax status — you’ll be classified as either:

• A resident taxpayer

• A non-resident taxpayer

Resident income tax

In Germany, the tax year is the same as the calendar year — 1st of January through to 31st of December².

You're considered a resident taxpayer if you have a residence in Germany, or if you live in Germany for more than 6 months during the tax year.

As a resident taxpayer, you have to pay tax on any income you make anywhere in the world to German authorities³.

In which instances do German residents working abroad need to pay income tax?

You’ll pay German income tax on your worldwide income if you’re considered a tax resident in Germany — that is, if you are in the country for 6 months or more in a calendar year.

If you're out of Germany for more than half of the year then you might qualify for non-resident status.

If you split your time across 2 different countries during the tax year, you may need to rely on double taxation treaties to make sure you don’t end up paying too much. But we’ll get to this later.

Income tax in Germany for non-residents

If you live in Germany for under half of the tax year — so less than 183 days — you might be deemed to have non-resident tax status. This means you pay tax in Germany only on taxable income you’ve earned in Germany¹.

What’s the tax rate in Germany?

Germany has a progressive tax system, meaning the more you earn, the higher the tax bracket applied to your income.

Joint tax filings are also allowed for married couples — so if one partner earns significantly less than the other, this can bring down your overall tax bill.

A progressive surcharge on income tax is also applied — although as of January 2021, this has been reduced significantly so only the highest earners pay the original amount of 5.5%¹.

If you’re employed in Germany, your employer will deduct money from your wages every month under the pay as you earn (PAYE) tax system.

If that’s the only source of income you have then you probably don’t have to submit a tax declaration. However, if you have multiple income sources, or want to claim exemptions and deductions, you’ll probably need to prepare a tax declaration.

Germany tax brackets (steuerklassen)

If you’re paying tax through the PAYE system, you’ll need to know your tax class. The tax class is what determines how much tax your employer withholds from your wages.

There are 6 different classes, depending on whether you’re working in a main job or second job, whether you’re married and have children, and so on. This helps make sure that the amount of tax withheld from your wage is correct.

Here’s the German income tax rate for 2021.

Salary range (individual tax filing)	Tax (%)¹
9.744 EUR	0%
9.744 EUR - 57,918 EUR	Progressive tax rate from 14% - 42%
57,918 EUR - 274,612 EUR	42%
274,612 EUR and above	45%

On top of these headline rates of tax, depending on your income, you may also pay a solidarity surcharge (Solidaritätszuschlag). As of January 2021, this tax is not paid by individuals with an average salary of around 62,000 EUR or below.

Over that amount, a sliding scale from 0% to 5.5% solidarity surcharge is applied, until the top bracket of about 96,850 EUR. If you earn above this level, you’ll need to pay the full 5.5%.

You might also have to pay a church tax (Kirchensteuer) if you’re affiliated to a church which is registered in Germany. This varies depending on where you live, but can be another 8% or 9%.

Germany tax rate vs US

In general terms, the German tax rate is considered to be lower than the tax burden in the US.

The US top federal tax rate in 2021 is 37%, compared to Germany’s 45%. In Germany, income tax brackets also look somewhat different to the US.

The top 45% rate in Germany kicks in at the equivalent of just under 300,000 USD income per year for a single individual — while the top US taxes aren’t paid until you’re earning well over half a million USD a year⁴.

German income tax exemptions and deductions

Taxable income is calculated by taking your entire income, and adjusting to reflect any relevant deductions, exemptions and allowances. However, as with all things related to tax, this can be quite complicated.

Here are some of the exemptions, deductions and credits that you might need to know about.

Deductions

Various deductions might be taken into account when calculating the amount of tax owed. These are then knocked off the total amount of income you earn before tax is worked out. Here are a few of them:

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• Deductions for parents of children, including an amount to support their education

• Deductions for people aged over 64

• Single parent deductions

• Deductions for parents of disabled children

• Deductions of maintenance or support payments paid to divorced or separated spouses

• Carer deductions, for taxpayers caring for a relative at home

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Expenses

You can deduct payments made for certain things such as⁵
Social security payments Study and childcare costs Insurance premiums School fees Pension contributions Payments made to registered charities from your taxable income Under some circumstances, and if you have official receipts, you can also make claims for things like the expense of moving home for work, or for commuting

However, some categories have limits and strict rules. For example, although charity donations could be tax deductible, there’s a cap of 20% of adjustable gross income applied to the total amount you can write off.

Get advice from a tax consultant (Steuerberater), or make sure you understand the rules properly if you decide to complete your own tax return.

Is there a US-Germany income tax treaty?

Double taxation treaties can have a major influence on the overall costs of income tax in Germany for foreigners.

A double taxation treaty matters if you might have tax obligations in more than one country — Germany and the US, for example.

The good news is that Germany and the US have a double taxation treaty in place which should mean you don’t have to pay tax twice on the same income⁶.

Exactly how this works will depend on the type of income, and the exact agreement that’s in place. But generally, any tax paid under one jurisdiction can be offset against what’s owed in the other, meaning you’re not paying twice.

How to pay your income tax in Germany

You can submit your tax declaration yourself either in paper form or using a smartphone app or online service. Alternatively, you’re able to choose having a tax consultant help you with the whole thing.

Completing a tax return may be mandatory — if you have more than one source of income for example. If you have income from only one employer you might not be required to complete a return at all.

However, it’s worth noting that by completing your tax return at the end of the year, the authorities will review what you’ve paid against your actual annual income, taking into account expenses and deductions. This may result in you getting money back — making this a worthwhile step⁷.

Paying income taxes online

You can pay your tax return online, which is usually quicker and easier than if you were using the paper forms.

Once you‘ve filed your return, you’ll have to actually pay any outstanding taxes. If you’re an expat, you might need to do so using a bank account held in a different country or currency.

Bear in mind that any charges which are added to your transfer will increase the costs significantly — reflecting in your tax bill overall.

Pay for your tax return from abroad with Wise

When sending money to pay for your taxes in Germany, avoid paying extra fees on exchange rate, try Wise.

Wise uses the mid-market rate — the one you usually see on Google — and shows you upfront how much transferring your money overseas will cost.

No surprises, no hidden charges — and you can save up to 6x compared to sending money with your bank.

With Wise you can make a fast, cheap and secure transfer to Germany and get your money where you need in just a few clicks.

Send money
to Germany 🌎

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Taxes might not be fun, but they’re inevitable. It’s your responsibility to understand what you owe, and where — even though this can be complicated if you’re an expatriate working abroad, or if you juggle life between different countries. Get professional advice to make sure you’re paying the right amount.

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Sources:

1. Tax Summaries - Income tax in Germany
2. Tax Summaries - Tax administration
3. Tax Summaries - Residence
4. Tax Summaries - Income tax in the US
5. Tax Summaries - Tax deductions
6. Tax Summaries - Tax relief and treaties
7. Make it in Germany - Salary, taxes and social security

Sources checked on 05.03.2022