How German Income Tax Is Calculated

Germany never taxes your gross salary directly. Payroll first subtracts a set of allowances to reach your taxable income (zu versteuerndes Einkommen), applies a progressive formula to that figure, and then deducts social insurance separately. Understanding the order matters, because it explains why a pay rise of €5,000 does not cost you €5,000 worth of tax at your headline rate.

Step 1: your taxable income

Three lump sums come off automatically before any tax is worked out. You do not need to apply for them or keep receipts.

• Employee lump sum (Arbeitnehmerpauschbetrag) — €1,230 a year, meant to cover work expenses. If your real work costs are higher, you can claim the actual amount in your annual tax return instead.
• Special expenses lump sum (Sonderausgabenpauschbetrag) — €36 a year. Small, but automatic.
• Provision lump sum (Vorsorgepauschale) — by far the largest. It is the tax code's estimate of your pension and health insurance contributions, roughly 9.3% of your income for pension plus around 10.85% for health and care insurance, subject to ceilings and a minimum floor.

On a €60,000 salary these together remove about €13,350, leaving roughly €46,644 of taxable income. That is the number the tax formula actually sees.

Self-employed people work differently: there is no employee lump sum and no Vorsorgepauschale, but the health insurance you actually paid is deductible instead.

Step 2: the tax formula

German income tax (Einkommensteuer) is not a set of flat brackets where crossing a line jumps your whole income to a new rate. The rate rises continuously, so only each additional euro is taxed at the higher marginal rate.

Taxable income (2026)	What happens
Up to €12,348	No tax at all. This is the basic allowance (Grundfreibetrag).
€12,349 – €17,799	The rate climbs steeply from 14% upward.
€17,800 – €69,878	The rate continues climbing, more gently, toward 42%.
€69,879 – €277,825	A flat marginal rate of 42% on everything in this band.
Above €277,825	45%, informally called the wealth tax rate (Reichensteuer).

Two details catch people out. First, the final tax amount is always rounded down to a whole euro. Second, hitting the 42% band does not mean you pay 42% of your income: on €80,000 of taxable income the average rate is closer to 30%, because everything below €69,878 is taxed at the lower rates on the way up.

Step 3: surcharges on the tax

Two extras are calculated as a percentage of your income tax, not of your salary.

• Solidarity surcharge (Solidaritätszuschlag) — 5.5% of your income tax, but only once your yearly income tax passes €20,350. Between that threshold and the point where the cap takes over, it phases in gradually. Most employees on ordinary salaries pay nothing.
• Church tax (Kirchensteuer) — 8% or 9% of your income tax depending on the state, and only if you are a registered member of a tax-collecting religious community. See why your state changes the answer.

Step 4: social insurance contributions

These are separate from tax and are calculated on your gross salary, not your taxable income. As an employee you pay roughly half of each and your employer pays the rest.

Contribution	Total rate	Your share
Health insurance (Krankenversicherung)	14.6% + insurer surcharge	Half
Long-term care (Pflegeversicherung)	3.6%, or 4.2% if childless and over 22	Half plus the full surcharge
Pension (Rentenversicherung)	18.6%	9.3%
Unemployment (Arbeitslosenversicherung)	2.6%	1.3%

Contributions stop at ceilings (Beitragsbemessungsgrenzen). Pension and unemployment stop counting income above €101,400 a year, and health and care insurance above €69,750. This is why very high earners keep a larger share of each additional euro: past those ceilings only tax continues to rise.

The care insurance rate falls by 0.25 percentage points for each child from the second to the fifth, so a parent of three pays less than a parent of one. Being childless and over 22 costs you the 0.6 point surcharge, which you pay entirely yourself.

A worked example: €60,000 in Berlin

A single employee, aged 30, no children, tax class 1, public health insurance at the average surcharge, not a church member.

Item	Per year
Gross salary	€60,000
Taxable income after allowances	€46,644
Income tax	€9,389
Solidarity surcharge	€0
Health and care insurance	€6,690
Pension insurance	€5,580
Unemployment insurance	€780
Net income	€37,561, about €3,130 a month

That is 62.6% of gross retained. Notice that social insurance (€13,050) costs more than income tax (€9,389) at this salary level. Below roughly €60,000, contributions almost always outweigh tax, which is why comparing only tax rates between countries is misleading.