The “gross” salary stated in the employment contract is not the money the employee finds in his or her account. Gross means the total before taxes and social security contributions are deducted. It is also stated in job advertisements. What arrives in the account is the “net” salary, i.e., the amount after all deductions. In Germany, income tax, church tax, and social contributions (health insurance, pension insurance, long-term care insurance, and unemployment insurance) are withheld from employees. Those who earn very well also have to pay a solidarity contribution. But what do these terms mean – and how are the deductions calculated?
Income tax. The tax office assigns each employee a wage tax class, on which the amount of tax depends. In Germany, there are six such classes, and they depend primarily on whether someone is single or married. The number of children also has an effect. The tax classes help the employer to calculate the employee’s wage tax. In Germany, who has to pay how much income tax is based on the following principle: those who earn more also have to pay more tax. So the higher the income, the higher the tax rate. It now accounts for 14 to 45 percent of total annual income. More on tax brackets at https://www.vlh.de/wissen-service/steuer-abc/welche-steuerklassen-gibt-es-und-was-bedeuten-sie.html
The first 10,908 euros that someone earns are not taxed as a subsistence minimum. Even those who work in a mini-job and earn no more than 520 euros a month do not have to pay taxes. Solidarity surcharge. The solidarity surcharge has been automatically deducted from salaries every month since 1991 as an additional levy to support the new German states. Since 2021, the solidarity surcharge of 5.5 percent on income tax only has to be paid by people who have to pay tax on more than 65,516 euros per year.
Church tax. Employees must pay church tax if they belong to a state-recognized church and have their main place of residence in Germany. This tax is also levied in addition to income tax. The amount of the deduction depends firstly on the salary and secondly on the federal state in which the person works. Generally, the tax is between 8 and 9 percent. Churches use this money to finance staff and church construction, among other things.
Social security contributions, including health insurance, pension insurance, and long-term care insurance, are paid equally by employers and employees.
Health insurance. Everyone in Germany must have health insurance. This prevents medical bills from leading to financial collapse. From 2022, people with statutory health insurance will pay a uniform health insurance contribution of 14.6 percent of gross income up to the income limit. On top of this, there is an additional income-based health insurance contribution of between one and 1.5 percent, depending on the health insurance fund. The employer also pays half of this in most cases. Children and non-working spouses are covered free of charge.
Those who earn more than 59,850 euros a year can also take out private health insurance. The cost of private health insurance is not based on income, but on benefits. Here, too, there are subsidies from the employer. Each member of the family must pay themselves.
Long-term care insurance. The contribution rate is 3.05 percent. Anyone older than 23 and without children pays an additional contribution of 0.35 percent. Except in Saxony, this contribution is shared equally with the employer. However, employees must pay the childless supplement on their own.
Pension insurance. Every employed person must pay into the pension insurance scheme. The contribution rate is 18.6% throughout Germany. Half of the costs are borne by the employer. Mini-jobbers who earn no more than 520 euros per month can be exempted from pension insurance.
Unemployment insurance. The contribution is 2.4 percent. Those who have paid in and become unemployed receive unemployment benefits as a result if they meet the requirements. Employers and employees also share the costs of unemployment insurance.
Das Brutto-Gehalt ist vor den Abzügen, Netto danach. Foto: tünews INTERNATIONAL / Linda Kreuzer