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EXPLAINED: How to understand your German payslip

EXPLAINED: How to understand your German payslip
Photo: DPA
Decoding your payslip when it’s in another language can be tricky. Here's our guide to figuring out what it all means.

If you’re an employee in a German company or organization, it’s very likely that you’ll receive your wages once a month – usually around the end of the month but your bosses should tell you the exact date of payment when you start working there. 

You should also receive a payslip (die Gehaltsabrechnung or Lohnabrechnung) that details how much will be going into your bank. 

Your name, address and tax identification number (Steuer ID) should be on the slip. You’ll also find your Krankenkasse (health insurance organization) and your Sozialversicherungsnummer  or SV-Nummer (social security number) on it, as well as the month you’re being paid for. 

Here’s a breakdown of what else is on your payslip:

der Betrag

This is the total amount that you are being paid before all the tax and contributions are taken off.

die Lohnsteuer 

This is the tax on your wages, which forms part of the Einkommensteuer (income tax). It’s collected at source and paid directly to the Finanzamt (tax office) by an employer.

Germany has a progressive tax system which means the higher you earn the more you pay.

Photo: DPA

Everyone is subject to a basic tax allowance which is not subject to tax. In 2020, the basic tax allowance is €9,408 if you are unmarried and not in a civil partnership. For couples who are married or in a civil partnership it is €18,816.

If your taxable income is higher than these amounts, you will pay income tax on it. The rates vary from 14 percent to 42 percent.

READ ALSO: What you need to know about tax changes in Germany in 2020

die Rentenversicherung

Pension insurance amounts to a massive 18.6 percent of your salary. Your employer pays half and you pay half (9.3 percent each).

If you are working full-time in Germany, no matter the amount of time, pension contributions tend to be non-negotiable and are required by law. Freelancers, anyone working less than 15 hours a week, and those in Germany on short-term contracts are only legally required to pay health insurance.

However note that some freelancers are required to pay pension insurance due to an old law dating back to 1913.

That law states that self-employed teachers, as well as a few other professions such as midwives and fishermen, are required by law to have a pension.

READ ALSO: How to maximize your German pension – even if you plan to retire elsewhere

The law wasn't well known but resurfaced about 20 years ago and now freelance teachers can be chased up by authorities if they don't pay contributions to pensions.

So where is all the money going to? It's not your own private pension pot – this money is being paid by the current working population to sustain today's retirees.

There are huge debates over how Germany can keep this model afloat in future in an ageing society.

There are fears that once the baby boomer generation has retired, fewer new workers will be there to fill the gaps and that means fewer contributors into the social security system.

Some experts have advised raising the pension age to 69.

die Krankenversicherung (KV)

This is the amount paid for your health insurance. The general contribution rate is 14.6 percent of your wages, with the employer and employee each paying half (so 7.3 percent each). 

As an employee you've likely chosen a public health insurance provider. More than 70 million people rely on Germany's statutory insurance system, representing 90 percent of the population.

If you are privately insured it works slightly differently. 

Your monthly premiums will be calculated according to your individual tariff as opposed to a flat percentage rate as is the case for the public insurance system.

READ ALSO: German health care – everything that changes for patients in 2020

die Pflegeversicherung

Next, we're on to long-term care insurance. This amounts to 3.05 percent of your gross income if you have children (and you have a surcharge of 0.25 percent if you don't have children) and again, these contributions are split between employer and employee.

Long-term care insurance means in theory that should you require long-term care at some point in your life, you should get it.

Photo: DPA

die Arbeitslosenversicherung

You pay unemployment insurance in case you lose your job. Contributions are currently at 2.4 percent, of which your employer pays half.

This gives you the right to claim unemployment benefit at 60 percent of your previous salary for a year while you look for another job.This is known as Arbeitlosengeld I.

The only requirement for receiving this money is that you have been in a job which is subject to compulsory insurance payments for 12 of the last 24 months. There are also allowances made if you have had to take time off work to care for a newborn child or because you were sick.

If you are still unemployed after a year you move into Arbeitslosengeld II, known as Hartz IV.

READ ALSO: 10 golden rules to know if you lose your job in Germany

die Kirchensteuer

Church tax, or Kirchensteuer, is a tax that religious groups charge their members to finance their duties. When you register at your first address in Germany, you fill in a box stating your religion. Your local tax authority collects this tax and passes it onto the church while retaining a service fee.

How much church tax you pay depends on your income and where you live. In Bavaria and Baden-Württemberg the rate is eight percent of income tax, while in other states it is nine percent.

The good thing is that this tax is voluntary so you don’t have to pay it if you don’t want to. But just remember to make that clear on your Anmeldungsformular. 

der Solidaritätszuschlag

The 'Soli' or ‘solidarity charge’ was introduced as a special 'tax' in 1991 mainly for infrastructure and projects in eastern Germany after German reunification in 1990.

The charge, which appears on taxpayers' payslips under Solidaritätszuschlag (solidarity surcharge), currently levies an additional 5.5 percent income tax or corporation tax after a certain level of earnings, and last year brought the state a total of €18.9 billion.

However, from 2021, nine out of 10 taxpayers will no longer have to pay it.

Under new rules approved by the German government, 6.5 percent of taxpayers will pay a reduced rate while 3.5 percent of the wealthiest Germans will continue to pay it at its full rate.

EXPLAINED: Do I have to pay Germany’s solidarity tax?

Here are some useful words or abbreviations that might appear on your payslip:

der Auszahlungsbetrag – the total amount you receive

Brutto – the German word for ‘gross', i.e. the amount prior to calculation and deduction of tax.

Netto – the amount of wages you receive after tax.

Netto Verdienst – net or total earnings

SV-AG Anteil or Sozialversicherung Arbeitgeberanteil – employer's contribution to social security

Steuerrechtliche Abzüge – tax deductions

die Betriebsrente – company pension

READ ALSO: These are the 8 German tax breaks you need to know about


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