Payroll tax in Germany for the years 2023, 2024: classes, rates, wage tax allowance

§ Wage tax and income tax in Germany

In general, every person in Germany is required to pay tax on the income they earn throughout the year. Income tax (Einkommensteuer) is paid differently depending on how the income is earned.

Wage tax (Lohnsteuer) in Germany is a special form of income tax for employees working under employment contracts.

When calculating salaries, employers deduct amounts from employees' salaries (gross salary), including the withheld wage tax, which is immediately transferred to the tax office. Thus, the employee does not need to calculate the tax themselves and transfer it to the state. The employer conveys the data about the income tax calculation for each employee to the tax office through an electronic employee tax card (elektronische Lohnsteuerkarte, ELStAM).

Wage tax in Germany is the tax deducted by the employer from the salaries of employees working under employment contracts. Germany employs a progressive income tax rate, meaning that the more a person earns, the higher the tax rate applied to their income. In 2024, rates ranging from 14% to 45% of the gross salary apply. The amount of payroll tax is influenced by the tax-free allowance and the tax class of the employee. An employee can submit a tax declaration to have the tax on their total annual income recalculated.

Wage tax in Germany is regulated by the Income Tax Act (Einkommensteuergesetz, EStG), sections 38 to 41.

At the end of the year, the employee can or must (depending on different circumstances) file a tax return to adjust the income tax. In the final income tax calculation, the employee may either get back the excess amount of income tax paid or pay the missing amount.

§ Payroll tax rates in Germany.

Germany employs a progressive wage tax rate (income tax). This means that the more a person earns, the higher the tax rate applied to their income.

For example, the basic tax-free allowance for a single employee in 2024 is 11'604.00 euros per year or 967.00 euros per month. If the employee earns less, they do not pay income tax at all. If they earn more, they start paying income tax. The higher the salary, the higher the rate. The tax rate starts at 14% and increases up to 45%.

§ Payroll tax calculation

The employer calculates the amount of tax on the employee's salary and transfers it to the tax office. The amount of tax depends on the salary. The higher the salary, the higher the income tax rate.

Additionally, the amount of the wage tax is influenced by the size of the employee's tax-free income. Tax classes were introduced to account for this factor (list of tax classes in Germany).

To calculate the amount of tax you will need to pay from your salary, you can use the Income Tax Calculator, provided by the Ministry of Finance online (link below on the page).

§ Tax classes

Each employee of a company is assigned a tax class or taxpayer category, depending on their marital status, employment relationships, and other conditions. The tax class and the amount of salary determine the wage tax rate. More information about tax classes: what are tax classes, description of income tax classes, how to choose a tax class, and how to change tax class.

§ Tax-free allowance, non-taxable income in Germany

As noted earlier, German tax legislation provides for tax-free allowance. These amounts are revised annually. In the table below, you will find the currently applicable tax-free amounts and the planned increases for these sums.

Table 1: Tax-free allowance (Steuerfreibetrag) for the year 2024 in Germany

Table 2: Tax-free allowance (Steuerfreibetrag) for the year 2023

If employees receive bonuses and salary supplements, they usually are also subject to payroll tax, although some of them may be subject to preferential taxation.

§ Wage Tax for Foreign Workers in Germany

Many foreigners come to work in Germany while maintaining a permanent residence in another country. Some live here full-time while working, while others travel continuously between their home country and Germany for work. How is wage tax calculated for foreign workers?

Germany has concluded agreements with many other countries to avoid double taxation of foreign workers (Doppelbesteuerungsabkommen). If you are a foreign worker in Germany, you can find out whether such an agreement exists with your country and what its conditions are. This information is available on the Ministry of Finance website (link below on the page).

A foreign worker can obtain a certificate from the tax office, providing the basis for obtaining tax class 0 and, thus, exemption from paying payroll tax in Germany.

When determining taxpayer status, Germany takes into account the ordinary residence of the foreign worker (gewöhnlicher Aufenthalt). The legislation defines the number of days in a year that a foreign worker can live in Germany and still be considered to have their ordinary residence in another country.

Payroll tax in Germany