Two separate systems: tax and social insurance
It helps to keep these apart from the start, because they behave differently. Income tax is progressive, funds general government spending, and is calculated on your taxable income after allowances. Social insurance is a flat percentage of gross salary, funds specific benefits — pension, healthcare, unemployment cover, long-term care — and is split between employer and employee.
A payslip mixes both together, which is why the gap between gross and net salary looks larger than "just tax."
Social insurance, split by who pays what
Four branches of social insurance apply to almost every employee, each with its own total rate.
| Contribution | Total rate | Employee share | Employer share |
|---|---|---|---|
| Pension (Rentenversicherung) | 18.6% | 9.3% | 9.3% |
| Health insurance (Krankenversicherung) | 14.6% + insurer surcharge | Half, plus half the surcharge | Half, plus half the surcharge |
| Long-term care (Pflegeversicherung) | 3.6%, or 4.2% if childless and over 22 | Half, plus the full childless surcharge | Half, no surcharge |
| Unemployment (Arbeitslosenversicherung) | 2.6% | 1.3% | 1.3% |
For a detailed worked example of how these contributions reduce a real salary, see how German income tax is calculated, which walks through a €60,000 salary line by line.
The true cost of employing someone
From the employer's side, the numbers above are only part of the picture. On top of matching the employee's share of pension, health, care and unemployment insurance — together typically adding up to close to 20% of gross salary — an employer also carries costs the employee never sees on a payslip:
- Statutory accident insurance (gesetzliche Unfallversicherung): paid entirely by the employer, with the rate set by the relevant trade association (Berufsgenossenschaft) based on the industry's risk profile.
- Insolvency contribution (Insolvenzgeldumlage): a small employer-only levy, generally a fraction of a percent, funding wage protection if an employer becomes insolvent.
- U1 and U2 levies: for smaller employers (typically up to 30 employees), reimbursement contributions covering continued sick pay (U1) and maternity pay (U2), charged at rates set by each employee's health insurer.
Add these together and a realistic all-in employer cost lands somewhere around 20–22% above gross salary, though the exact figure depends on industry, company size, and which health insurer each employee belongs to.
If you're setting up as an employer, our GmbH bookkeeping checklist covers the monthly payroll tax filing (Lohnsteueranmeldung) that comes alongside these contributions.
Income tax, solidarity surcharge and church tax
On the tax side, an employee's salary is taxed progressively after the basic tax-free allowance (Grundfreibetrag) of €12,348, rising through bands up to 42% and then 45% at the very top. Our full breakdown of the calculation covers the bands and allowances in detail, and German tax classes explained covers how your tax class changes monthly withholding.
Two further items are calculated as a percentage of your income tax, not your salary:
- Solidarity surcharge (Solidaritätszuschlag): 5.5% of income tax — but only once your yearly income tax passes a fairly high threshold. Since a 2021 reform, most employees on ordinary salaries pay none of it at all.
- Church tax (Kirchensteuer): 8% or 9% of income tax depending on the state, and only for registered members of a tax-collecting religious community. See why your state changes the answer.
Family tax benefits: Kindergeld and the child allowance
Parents in Germany get support through two overlapping mechanisms, and you don't have to choose between them yourself.
Kindergeld (child benefit) is a monthly payment made directly to parents for each child, regardless of household income. It's worth a few hundred euros per child per month, and the exact amount is revised periodically, so check the current year's figure rather than relying on an old one.
Kinderfreibetrag (child tax allowance) instead reduces a parent's taxable income directly, which is worth more to higher earners than the flat Kindergeld payment. Rather than asking you to pick one, the Finanzamt runs an automatic comparison (Günstigerprüfung) on your annual tax return: if the allowance would have saved you more tax than the Kindergeld you already received, the difference is credited to you. If not, you simply keep the Kindergeld as paid.
Related family benefits sit alongside these two: parental allowance (Elterngeld), calculated from net income and closely tied to your tax class in the run-up to a birth — see how that timing works in our tax classes guide — and additional support such as a maintenance advance for separated parents and education-related allowances for older children in training or study.
Where the percentages stop climbing
Social insurance contributions don't rise forever. Pension and unemployment insurance stop applying above one annual ceiling (€101,400), and health and care insurance stop above a lower one (€69,750) — figures covered in more detail in our income tax calculation guide. Above those points, only income tax continues to rise with salary.
Frequently asked questions
How much does an employer actually pay on top of a salary in Germany?
Roughly an extra 20% of gross salary in statutory social insurance contributions, plus employer-only extras like accident insurance and, for smaller employers, the U1/U2 reimbursement levies.
Do employees and employers split social insurance contributions equally?
For most branches, yes, close to a 50/50 split. The exception is long-term care insurance, where childless employees over 22 pay a surcharge the employer doesn't share.
Does everyone in Germany pay the solidarity surcharge?
No. Since a 2021 reform raised the exemption threshold, it only applies once annual income tax passes a fairly high level, so most employees on ordinary salaries pay none of it.
What is Kindergeld and how much is it?
A monthly child benefit paid to parents regardless of income, worth a few hundred euros per child per month. The exact amount is revised periodically.
Should I take Kindergeld or the child tax allowance?
You don't have to choose. The Finanzamt automatically compares both on your tax return and credits the difference if the allowance would have been worth more than the Kindergeld you received.