Tax Classes in Germany

Have you ever heard about Steuerklasse (Tax Class)? Have you ever wondered on what basis they are calculating the amount you are going to pay as tax that is usually taken from your salary automatically if you are of course an employee (it is not automatically taken if you have your own business or you are a freelancer)? (We will later on talk about how you make your tax declaration in case you run your own business or you work as a freelancer.) Well here is how they calculate:

In addition to your yearly income, state, church taxes and solidarity surcharge, your tax class is one of the biggest factor of how much you are going to pay as tax. This could be something from %30 to %45 of your yearly income depending on your tax class and income. Seems though and too much when it is %45, isn’t it? There are 6 different tax classes in Germany and you just can’t freely choose which one you would like to have. There are some pre-conditions to be in some tax classes. This is how it works:

  1. Tax Class I (Steuerklasse I): For people who are single, widowed or divorced without children. What does single mean? It is not like you have boy-girlfriend or you have a flirt. The law about being not single is that is either you must be married or you must have a relationship agreement that is accepted by the law. If you are divorced or widowed and you don’t have children then you will be assigned to Tax Class I. What if you are widowed or divorced and you have children? Then it is Tax Class II:
  2. Tax Class II (Steuerklasse II): As we have mentioned above, for people who are divorced or widowed with children.
  3. Tax Class III (Steuerklasse III): Best tax class ever invented. For people who are married with only one income or double income but one of them has way less earning than other one. In case you and your wife is earning (but there is a gap between your earnings) then one of you can choose Tax Class III anyway then the other one should have Tax Class V. You will be taxed at minimum rates with this way. “We should warn you here that you must go to Finanzamt after you get married and inform them about your situation. You must specifically tell them that one of you want to have Tax-I and the other one Tax-V. Otherwise they will assign both of you to Tax Class IV.”
  4. Tax Class IV (Steuerklasse IV): Married people who are earning similar amounts together.
  5. Tax Class V (Steuerklasse V): We have explained it in Tax Class III.
  6. Tax Class VI (Steuerklasse VI): For people who have more than one job.

There are plenty of online tax calculation tools out there. You can simply google it as “brutto-netto” and try one of them. I will try to give an example here how much a person earn with what class here. But before that, there are some other things we should explain here:

  • Solidarity Surcharge: We are not experts but we know that this tax was invented after demolition of Berlin Wall and German Reunification. Political people have seen during those times that there is a big gap concerning incomes between East and West Germany. Then they decided to get a tax to feed all the people. Initially this was planned for a couple of years but then they basically like to get an easy money from people and have never canceled it. At the moment this charge can get up to %5.5.
  • Church Tax: If you declare your religion and if this religion is one of the ones that have churched and praying rooms in Germany. Then you will have to pay some taxes.
  • Krankenversicherung: Health insurance. You have to choose one of the health insurance providers. While half of the amount will be taken from your salary, other half will be paid by your employer if you have an employer. This type of health insurance is Gesetzlich Pflichtversicherungen (mandatory insurance by law). There is also another option you can choose which is called as Privatversicherungen. You will now free to choose your own health insurance and the cover you would like to have. (Let’s say you don’t want  to have something with teeth. Then the cost will be decreased.) But as of 2019, you must have at least 60k € yearly income to be able to choose this option.
  • Rentenversicherung: Pension insurance.
  • Arbeitslosenversicherung: Unemployment insurance.

There are maybe more explanations we know about those but we are here larn about tax classes. Note that if you are working under a company, those taxes will be taken from your monthly salary automatically. Now an example of how much a person can earn with those classes: ( a person who hasn’t declared a religion and working in a company with € earnings)

Tax ClassIIIIIIIVVVI
Monthly Income300030003000300030003000
Class Tax incl. Solidarity448376181448784780
Church Tax000000
Pension279279279279279279
Health246246246246246246
Unemployment454545454545
Net Monthly Income193519872199193516001561

 

If you have no idea about you tax class, don’t worry. You can learn it from your pay slip. It will be written on the top or you can go to Finanzamt and request a Lohnsteuerkarte (Income Tax Card) or you can get one online via ELSTER (Elektronische Steuererklärung) but this may take a couple of weeks. Our next topic will be ELSTER where you can do basically everything online that you are supposed to do in Finanzamt. It is basically e-Finanzamt. One of the most important things you could possibly do with it is Steuererklärung (Tax Declaration) whether you are an Employee or a Freelancer or a Company Owner. Until then take care of yourself. Thank you for reading, I hope it was helpful.

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