All resident individuals are taxed on their worldwide income. Non-resident individuals are taxed (usually by withholding) on German source income only.
Taxable income covers income from the following categories:
- Agriculture and forestry.
- Trade or business.
- Independent professions.
- Capital investment.
- Rents and royalties.
- Other income (as defined by tax law).
Net income is based on all gross earnings received during a calendar year and reduced by income related expenses during the same period for each of the above categories. Losses from one of the seven basic income categories (except capital investment) can fully be offset against positive income from another income category (exceptions for 'other income' may apply).
The total income after deductions in each category, which may be further reduced by lump-sum deductions or, within limits, by actual payment for special expenses defined by tax law, represents the taxable income.
Personal income tax rates
Germany has progressive tax rates ranging as follows (2021 tax year):
|Taxable income range for single taxpayers (EUR)||Taxable income range for married taxpayers (EUR)||Tax rate (%)|
|Over||Not over||Over||Not over|
|9,744||57,918||19,488||115,836||14 to 42*|
|274,612||and above||549,224||and above||45|
* Geometrically progressive rates start at 14% and rise to 42%.
Surcharges on income tax
To improve the economic situation and infrastructure for certain regions in need, the German government has been levying a 5.5% solidarity surcharge tax. The surcharge is imposed as a percentage on all individual income taxes.
As of 1 January 2021, the application of the solidarity surcharge tax has been substantially reduced. In general, no solidarity surcharge is levied any longer for individuals filing separately and having an income tax burden of not more than EUR 16,956 (approximately equivalent to a taxable income of EUR 62,000) as well as for married filing jointly taxpayers with an income tax burden of not more than EUR 33,912 (approximately equivalent to a taxable income of EUR 124,000). Where the aforementioned thresholds are exceeded, a sliding scale is used so that the top 5.5% solidarity surcharge would eventually only apply in full for individuals filing separately and having a taxable income of approximately EUR 96,850 or married filing jointly and having a taxable income of approximately EUR 193,700. The full rate of solidarity surcharge is applied on capital investment income subject to lump sum taxation and on employment income taxed at lump sum rates.
Members of officially recognised churches pay church tax as a surcharge on their income tax. The rates are either 8% or 9%, depending on the federal state where the individual resides.
Trade income tax
Trade income tax is levied on business income, whereas for individuals and partnerships a tax-free amount of EUR 24,500 has to be considered (i.e. not for corporations).
The respective municipality is responsible for the final tax assessment. The rate fixed by the municipality ('Hebesatz') is for larger cities between approximately 250% and 580% of the basic amount, which is 3.5% of the business income.
Local and state income taxes
There are no local or state income taxes levied in Germany.