The German tax system is known for its high income taxes and complexity. If you're an expat living in Germany or intending to relocate, you must have an understanding of the German tax system and how you can take advantage of it.
You must pay tax on your income if you earn money in Germany. As taxable income increases, the German tax system uses a progressive tax rate.
Your Tax ID - Steuer Identifikationsnummer in Germany
You will get your Tax ID within a couple of weeks after registering in Germany in the post. This tax ID must be provided to your employer.
If you haven't received your tax ID, within 4 - 6 weeks after you register your address, you may need to contact the tax department / Finanzamt to know what happened in your specific case.
How does Finanzamt assign me to a tax class?
You will be assigned a tax class based on the marital status you provide to the Standesamt when you register. As well as sending you the tax ID via post, the Finanzamt will also inform our employer in a couple of weeks.
The deductions from your salary will be calculated correctly based on the tax class sent to your employer from the Finanzamt. In the meantime, you will be taxed at the highest rate in the German tax system. Therefore, check your payslip as soon as you receive them to make sure that you are assigned to the right tax class.
The Tax Classes In Germany
In Germany, there are six tax classes or Steuerklassen
Tax Class | Marital Status |
Tax class 1 | Single, widowed, divorced or long-term separated |
Tax class 2 | Single parent (Living separately) |
Tax class 3 | Married |
Tax class 4 | Married with an equal income than the other partner |
Tax class 5 | Married with a lower income than the other partner |
Tax class 6 | Second job or tax deduction without proper employee information |
If you are a registered couple and both live in Germany and earn, the person who earns the most money can choose the lowest taxed class, and the other person can choose either tax class 1 or 5.
Can I change my tax class in Germany?
While it is not mandatory in Germany, you can change your tax class if you change your marital status. The registry office will inform the Finanzamt if you record your marriage or file your divorce in Germany.
The Finanzamt needs to be informed when an expat’s spouse joins them in Germany and get their tax class changed. While this may change your tax class from tax class 1 to 3 and give you relatively more income monthly, the amount of tax you pay by the end of the year could be the same.
In case you would like to switch to a different tax class, you will have to request the change via a form. While you need to be physically present in the Finanzamt in some towns to submit the tax class change form, you also have the possibility to send it to the Finanzamt by post in most of the cities in Germany. It was only possible to change the tax class once a year. However, this has been changed in 2020 and married couples can request a change in tax class multiple times a year.
Is it possible to reduce your German tax?
Before you read
This article does not qualify me to give any tax advice under German law, despite the fact that I wrote the article. As a media platform, Expatova cannot offer any tax services as well. Before making any decisions regarding the following points, we strongly advise you to consult your professional tax consultant.
As I wrote in the beginning of this article, You need to pay tax on the income you earn. As taxable income increases, the German tax system uses a progressive tax rate. Therefore basically, the tax will be reduced if your income is lower. But, that's not how you want it, is it?
As I know of, you cannot effectively reduce the tax you pay in Germany. However you can reclaim a portion of the amount you paid for the last year at the beginning of every year.
As a resident in Germany regardless of whether you are a citizen or an expat, you have all the right to file a tax return. As per Taxfix, one of the leading tax declaration portals in Germany, France, Italy and Spain, the average tax return in Germany is 1.051 euros. Therefore, we’d strongly recommend you to file the tax return every year without fail.
If you haven't already done so, you can also file your tax return for the previous years. Your tax consultant will be able to help you with the process.
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