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TAXES

EXPLAINED: How to understand your German payslip

Everyone looks forward to getting their salary each month - but if you're employed in Germany, you may be wondering why half of it appears to be missing. Here's how to understand your payslip and what tax deductions you can expect.

Money lies on top of a German payslip.
Money lies on top of a German payslip. Photo: picture alliance / dpa | Arno Burgi

If you’re an employee in a German company or organisation, 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 organisation) and your Sozialversicherungsnummer  or SV-Nummer (social security number) on it, as well as the month you’re being paid for. 

You may also see some other information on there that’s used to identify you, but isn’t too important for you to take note of. The first is the Arbeitnehmer-Nr. or Personal-Nr., which is your employee reference number within the company, and the second is Eintritt or Eintrittsdatum, which should refer to your starting date at the company. 

The information to pay most attention to on your payslip is your salary information and any deductions. With so many different types of tax and insurance to pay, an average worker in Germany will see about 40 percent of their salary deducted – though there are some good reasons for this, which we’ll go into below. 

Here’s a breakdown of what to expect:

der Betrag / die Brutto Bezüge: 

This section refers to your gross salary before tax and other deductions. Here, you’ll see the magical amount you were promised when you first took on your job. Be prepared to see it slowly but surely evaporate due to the contributions below.

die Lohnsteuer 

This is essentially an advance payment of your Einkommensteuer (income tax) each month. It’s collected at source and paid directly to the Finanzamt (tax office) by an employer.

Of course, Lohnsteuer doesn’t take into account any work-related expenses or other tax deductions you may have, which is why it can be worth doing a tax return at the end of the year and why doing so often leads to a rebate.

Since Germany has a progressive tax system, the amount you pay in income tax is linked to how much you earn. Basically, the higher you earn the more you pay.

The good news is that everyone is given a tax-free allowance, which you may see detailed on your payslip under Freibetrag or Steuerfreibezug. As of 2022, this is €9,984 for individuals and €19,968 for couples who choose to submit a joint income-tax assessment.

For everything over that, you’ll pay between 14 and 42 percent income tax on any earnings up to €277,826. All earnings above this whopping figure will be taxed at 45 percent. 

READ ALSO: Everything you need to know about your German tax return in 2022

die Rentenversicherung

Pension insurance amounts to a massive 18.6 percent of your salary, but you don’t have to pay this all yourself. Your employer pays half and you pay half (9.3 percent each).

This is due to remain the same in 2022, though the government does plan to increase contributions in stages to reach 20 percent of earnings by 2025. That means 10 percent paid by you, and 10 percent paid by your boss.

To try and cope with changing demographics and an ageing population, the traffic-light coalition is also trying to find new ways to make the money stretch further.

Since ever fewer people are paying into the pot and every more are drawing out of it, the government wants to invest some of the money into lower-risk stocks.

That means that two percent of your contributions will be put into an equity pension pot, while the rest will be put in the usual pay-as-you-go pension. 

An elderly couple sit together on a bench in Kiel

An elderly couple sit together on a bench in Kiel. Photo: picture alliance/dpa | Marcus Brandt

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

If you are working full-time in Germany, even on a temporary basis, pension contributions tend to be non-negotiable and are required by law.

die Krankenversicherung (KV)

This is the amount you pay for your health insurance each month.

You’re likely have chosen a public health provider such as TK or AOK when you moved to Germany or before taking your first job.

The general contribution rate for these public insurance contracts is 14.6 percent of your wages, with the employer and employee each paying half (so 7.3 percent each). If your contract doesn’t entitle you to sick pay, the contribution will be set at 14 percent.  

Public insurance companies can also choose to set an additional contribution of up to 2.5 percent, which they may justify with the offer of additional services or better coverage. 

If you are privately insured, the system works slightly differently. 

Your monthly premiums will be calculated as a flat fee according to your tariff rather than a percentage of your wages. This can often make it cheaper for high earners in the short-term – though costs can shoot up in the event of illness or as you get older. 

READ ALSO: Reader question: How can I change my German health insurance provider?

die Pflegeversicherung

As another way of putting money aside for a rainy day, you’ll also see a mention of ‘Pflegeversicherung’, or long-term care insurance, on your payslip. This amounts to 3.05 percent of your gross income if you have children, or 3.40 percent of your income if you don’t. 

Once again, the contributions for this are split between you and your employer, so in reality half of this amount comes out of your salary. 

Long-term care insurance means in theory that should you require care at any point in your life, such as assistance with shopping or live-in care in your old age, you should be able to get it.

An elderly woman waits for a lift in Berlin

An elderly woman waits for a lift in Berlin. Photo: picture alliance / Britta Pedersen/dpa-Zentralbild/dpa | Britta Pedersen

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 60 percent of your previous salary from the job centre 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 institution, staff and the upkeep of buildings like old churches. When you register at your first address in Germany, you’ll be asked to state your religion on the Anmeldeformular. 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’re not religious, though there is anecdotal evidence of the church trying to find out whether or not an “atheist” foreigner has in fact been baptised elsewhere, which can lead to issues if you were once a practicing church-goer but aren’t anymore.

It’s worth also noting that opting out of the tax – and, by extension, affiliation with the church – may have ramifications for potential religious weddings, which you can find out more about below. 

READ ALSO: EXPLAINED: The rules foreigners should know on German church weddings

Churchgoers in North Rhine-Westphalia

People take their seats at a service at St. Peter’s church in Recklinghausen, North Rhine-Westphalia. Photo: picture alliance/dpa | Caroline Seidel

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.

It used to be paid by pretty much everyone, but over the past few years this has been changed and now only the top 3.5 percent of earners are still expected to pay it. 

That means it only applies to you if you’re lucky enough to be earning more than €96,800 as an individual or more than €193,600 as a married couple. In this case, it’s calculated rather confusingly at 5.5 percent of your Lohnsteuer, so someone who pays €3,000 a month in income tax would pay an additional €165 as a solidarity charge. 

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

KK % – the contribution rate for your Krankenkasse (health insurance provider)

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ENERGY

Why did Germany make a U-turn on gas levy – and what do the new plans mean?

It's been an extraordinary week in German politics after the government announced a U-turn on the gas levy, and plans for a new gas price cap. Here's what we know so far.

Why did Germany make a U-turn on gas levy - and what do the new plans mean?

What happened to the gas levy?

There had been lots of talk about getting rid of it, but on Thursday it became official: the German government announced it was ditching the gas levy – or Umlage – that was meant to come into force on Saturday October 1st. 

This surcharge would have seen gas consumers in Germany take on some of the soaring costs that suppliers are facing as they try to replace Russian gas. It was to be used to prop up struggling importers such as Uniper, Sefe and VNG.

The gas levy would have resulted in 2.4 cents per kilowatt hour being added to gas bills, which would be an extra burden of several hundred euros per household, although VAT on gas consumption was to be reduced at the same time.

It was due to come into force on Saturday October 1st – but the levy had come under fire in recent weeks because of the burden it would add to households during the cost-of-living crisis as well as concerns about energy firms taking advantage of it. It was also unclear if it was constitutional after it was announced gas firm Uniper was being taken under state control. 

The gas levy was put together when there was a real fear that Germany could imminently run out of gas, the government said. Economics and Climate Minister Robert Habeck maintained that it was the right instrument at the time but that it is “no longer needed”.

Instead of the gas levy, tailored measures are to be developed for troubled gas suppliers. 

So the German government has made a significant U-turn on its policy – it’s pumping a package worth €200 billion into providing energy price caps that will aim to shield homes and businesses across Germany from sky-high bills. 

READ ALSO: Germany to spend €200 billion to cap soaring energy costs

Germany, which has been highly dependent on imports of fossil fuels from Russia, has been desperately trying to find other energy sources as supplies have been cut.

Economics and Climate Minister Robert Habeck (Greens), Chancellor Olaf Scholz (SPD,) and Finance Minister Christian Lindner (FDP), present the German government's plans for energy supply and price caps for gas.

Economics and Climate Minister Robert Habeck (Greens), Chancellor Olaf Scholz (SPD,) and Finance Minister Christian Lindner (FDP), present the German government’s plans for energy supply and price caps for gas. Photo: picture alliance/dpa | Kay Nietfeld

Wait – so there is more support for people?

Yes. The German government is throwing its weight behind a different strategy. It will provide a temporary cap on electricity and gas prices to help protect residents from being hit with massive bills. 

On Thursday, Chancellor Olaf Scholz, speaking via video link, said: “The German government will do everything so that prices sink.”

Scholz said that the price hikes on the energy market were a consequence of Russia’s actions, which used “its energy supplies as a weapon”.

“We find ourselves in an energy war over prosperity and freedom,” Finance Minister Christian Lindner added during the press conference.

Lindner said that protecting consumers against rising bills was a “crystal clear answer” to show Russian President Vladimir Putin that Germany is “strong economically”.

However, it’s still unclear what exactly the gas price cap – or Gaspreisbremse – will look like in practical terms. A commission of experts is to draw up a proposal by mid-October. The aim is to see costs capped for a basic quota of gas. 

READ ALSO: How might a gas price cap in Germany work?

And it won’t just affect gas prices – electricity costs will also be capped.

The profits of power plants that are operated without gas but are raking in high additional profits due to rising energy prices are to be skimmed off.

These revenues are to be used to subsidise the electricity consumption of consumers and small and medium-sized enterprises to a certain extent – here, too, the talk is of ‘basic consumption’ being covered. 

READ ALSO: KEY POINTS – Everything Germany is doing to relieve rising energy costs

What about the VAT reduction?

As we mentioned above, the VAT cut on gas was due to come into force along with the gas levy to ease the pressure on households. 

On Thursday, Habeck said the VAT cut on gas consumption, from the usual 19 percent down to seven percent – will remain in place even though the gas levy is being dumped. 

People walk near the North Sea in Westerland, Sylt on September 28th. Temperatures have dropped in Germany.

People walk near the North Sea in Westerland, Sylt on September 28th. Temperatures have dropped in Germany. Photo: picture alliance/dpa | Frank Molter

How is this all being funded?

That was a major contentious point, but the coalition of the Social Democrats (SPD), Greens and Free Democrats (FDP) seem to have come to an agreement.

The government wants to borrow up to €200 billion for the economic stabilisation fund. This fund, which was initially set up in 2020 to help pump cash into pandemic support for people and businesses in Germany, can only be sued for specific measures. That means it doesn’t count as being part of the annual budget for the federal government, keeping Finance Minister Christian Lindner happy. 

So will energy prices actually come down?

Energy prices are still expected to go up but a price cap should help stop them from spiralling too much.

But Economics and Climate Minister Habeck has been trying to dampen expectations of the gas price brake. The Green politician said it wouldn’t be possible to use the cap to subsidise the gas price down as far as it had been in 2021. “And not for a very long time,” he told Deutschland-Funk on Friday.

“Gas and energy as a whole will cost the German economy more than it did in the very affordable years,” he added.

Habeck said it wouldn’t be possible to avoid every price rise. “Some burden will be taken (through the price cap), but the complete burden will certainly not be able to be carried,” Habeck said. “Not even with this gigantic €200 billion.”

Habeck also warned against believing that a gas price cap means people will be able freely use more energy this winter. He said consumers – whether private households or firms – still had to cut down on gas as much as possible to avoid a shortage this winter. 

On Thursday, Federal Network Agency boss Klaus Müller urged German residents to avoid pumping up their heating too early due to the precarious situation. 

“Without significant reductions, including in private households, it will be difficult to avoid a gas shortage this winter,” he said.

READ ALSO: German residents urged to save more gas despite cold weather

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