Germany serves best if you want to build your career and earn good money in a European country. It is one of the wealthiest and most developed countries in the world. There are numerous prestigious and worldwide famous organizations and firms entrenched in Germany. As an economically stable and rich country, the average salaries offered by German employers are quite lucrative. According to Statistics, while working in Germany, you can earn a good average monthly income from 2500 to 3000 Euros. Consider the average gross income in Germany in 2021, which is about 56,985 Euros, and after-tax deduction, it is 34,126 Euros, earned by a single person working in Germany. This gross monthly income is considerably good and can support a better living standard there, including your accommodation, eat-outs, transportation, and other treats.
But keep in mind, your salary depends upon the position and qualification you hold as an employee.
Your qualification, experience, lifestyle, and place of living are a few noticeable factors that can affect your income, salary, and savings in Germany.
What do you mean by Gross (Brutto) and Net (Netto) salary in Germany?
The Gross salary is your raw salary, without any tax and social security obligatory deductions.
The Net salary is the salary of a taxable employee in Germany; he/she received after statutory reductions of taxes and other funds from the Gross salary.
Who is a Taxable Employee in Germany?
A taxable employee is one who earns an income of more than 9,974 Euros per year, liable to pay tax in Germany. The tax amount according to the tax class is automatically deducted from your gross salary every month and the amount received is the net salary.
Domestic workers also known as Haushaltshilfe in German are responsible for the duties of laundry, cooking, doing the dishes, shopping for groceries, and even looking after your kids and pets.
These workers can enter your house with or without your availability there. You can discuss further cleaning and spectating details directly with them. With such assistance, one can easily work ahead in their busy work life without stressing about the tidiness of their house.
There are certain tax classes in Germany, every employee is assigned to. Each tax class in Germany generates a different tax rate. These tax classes are classified according to the life situation of the taxable employee. For instance,
- Whether a taxable employee is single or married
- If he/she has a child or children
- Whether he/she is eligible to pay church tax or not
German tax classes are classified as
Tax Class 1: For single employees, whether they are unmarried, widowed, or divorced.
Tax Class 2: For employees who are single parents, living separately from their spouses or partners.
Tax Class 3: For an employee who is married and has a child or children, and the other spouse belongs to Tax Class 5.
Tax Class 4: For employees who are married and both spouses are earning similar income.
Tax Class 5: For an employee who is married and earns a lower income than his/her spouse belonging to Tax Class 3.
Tax Class 6: For all employees doing double jobs and having income from more than one source/employer.
For married couples, Tax Classes 3 and 5 are applicable when both spouses are living in Germany. If your spouse belongs to some other country, you will be classified as Tax Class 1, until he/she gets German registration.
How to identify your Tax Class?
After you register yourself in Germany, you receive your Tax ID within a duration of four to six weeks. Be careful and thoughtful about the marital status you mention, during your first time registration at city registration (Anmeldung). Usually, the German Tax Office (Finanzemt) assigns your Tax Class, based on your mentioned marital status.
Your employer is informed about your Tax ID and Tax Class, so they can calculate the deductions of tax from your gross salary, according to the applicable tax rate. Your Tax Class is always mentioned on your pay slip under SKI (Steuerklasse).
Can I Change my Tax Class?
If your marital and family circumstances change, you have to apply to change your Tax Class. Contact your city registration office (Rathaus) and inform them, they will proceed after communicating with the German Tax Office (Finanzamt).
Why do I have to Pay such Taxes?
A question must have been arising in your mind, about the benefits you will entertain if you pay that much taxes while working in Germany. Germany possesses a well-developed and maintained system for the benefit of citizens and the stability of the economy. The tax system provides outstanding financial security to citizens. These social contributions benefit the employee during an illness, a health crisis, unemployment, and after retirement.
These social security contributions make you eligible for various beneficial insurances that can help you a lot
Tax Deductions from Gross salary
The following tax payments are deducted from the Gross salary of the taxable employee in Germany:
Income Tax (Lohensteuer )
Income tax or wage tax depends upon your gross salary and the tax class you belong to. Your income when you are not self-employed is directed to income tax, through your employer to the tax office.
Solidarity surcharge (Solidaritatszuschlag)
It is a portion of the income, West Germans pay for a more stable reconstructed federal state of Germany. A maximum of 5.5% deducted from the income as a solidarity surcharge on a gross income of about 73,000 Euros in a year.
Pension insurance (Rentenversicherung)
18.6% of your gross (Brutto) monthly salary is directed to pension insurance. Obligation to pension insurance excludes judges, freelancers, and civil servants. But they can opt to pay it voluntarily to secure their old age.
Long-term care insurance (Pflegeversicherung)
Long-term care insurance is deducted as 3.05% of your gross salary; it can be 0.35% if you have no children.
Unemployment insurance (Arbeitlosenversicherung)
2.5% of your gross monthly salary is deducted as unemployment insurance, to serve and support you well during any unemployment crisis. The deduction percentages from gross salary could vary. But after all these deductions the net (Netto) salary you receive each month is approximately 60% of your gross (Brutto) monthly salary in Germany.
How are Taxes and Social Security Contributions Deducted from Salary?
You only receive your net salary every month; the amount is automatically deducted from your gross (Brutto) salary and is delivered to the Tax office (Finanzamt).
What is the Progressive tax system in Germany?
The tax collection system of Germany is a progressive tax system. A person who earns more will pay more tax compared to a person who earns less.
For example, the Income tax rate for a person earning a gross amount of 58,597 Euros in a month is 42%. While a person earning more than 277,826 Euros in a year will pay 45% income tax (Rich Tax Reichensteuer).
What is the maximum tax-free income in Germany?
If you are making a monthly income of more than 520 Euros in Germany, you will be automatically enrolled in the German social security system. For 2022, the tax-free income in Germany (Grundfreibetrag) is 9,984 Euros per year.
For married employees, tax-free income in 2022 is 19,488 Euros.
Is Living in Big Cities Expensive in Germany?
Although you receive a slightly higher income in the big cities, you should never forget the living expenses, transportation costs, and other fringes that can decelerate your savings while working in the big cities. Your saving is inversely proportional to your expenses. Living a balanced lifestyle can help you save more. While some undeniable expenses of accommodation in expensive areas, transportation and kitchen amount are dependent on your modesty and standards.
Is Tax Deduction Similar for all different professionals in Germany?
No, different deductions and allowances apply to different professions and earners in Germany.
For Trainees: If a trainee is earning more than 520 Euros, he/she must have to pay taxes and social security contributions.
For Freelancers: Freelancers do have to pay certain taxes, other than income tax.
For Civil Servants: Civil servants are exempted to pay social security contributions. They entertain a higher net salary per month. But they have to arrange private health insurance for themselves.
For Mini-Jobbers: If you are employed for a mini-job you do not have to pay tax and social security contributions in Germany unless the income exceeds 520 Euros. Mini-jobbers do not have to pay pension insurance.
For Students working part-time: Students who are doing part-time jobs do not have to pay taxes and social security contributions if they earn less than 520 Euros and/or work less than 20 hours in a week.
Can being Experience Help Me Get a Good Salary in Germany?
Professional exposure and experience
There are many jobs in Germany that require standard skills and professional exposure along with a university degree. The vocational training programs in Germany facilitate the demand. If you succeed in getting skills training related to your degree, you can get an attractive job offer and can start earning a good income within some time.
If your education can get you only an entry-level or lower-paying job, you can barely cope with the living costs of Germany, which are quite high. As a foreigner, if you opt for Germany to build your career, and save more money make sure to acquire the most demanded skills and experiences, or have a degree or postgraduate degree in a MINT field.
The above-discussed information has described the details of difference between Gross and Net salaries in Germany. The social care plans and system of Germany are unquestionably good. They serve as blessings to employees in different phases of life. These deductions from your gross salary make you eligible for a pension to entertain a care-free old age, long-term care plans such as maternity care, and children benefits, accident insurance, unemployment insurance plans, and uncountable healthcare boons.
You should always calculate every possible expense, whether they are in compliance with your gross and net income before taking an offer or making a decision about your next step in career development. Your offered gross salary in Germany is liable to taxes and social security contributions, and you will receive a deducted net salary every month.