Without a fairly advanced grasp of German, the long list of deductions on your payslip can make your head spin – even with the help of Google Translate. This is partly because some of these deductions are unique to Germany and partly because, well, they’re in German. But rest assured, you’re paying as much in taxes and charges as native Germans do and, once translated and broken into digestible chunks, the difference between your net income (the wage paid out to you by your employer) and your gross income (your wage after deductions) is actually quite straightforward.
The Local has created this short guide in partnership with private health insurance company ottonova to help you understand what comes out of your salary and why. Plus, find out how you can save thousands of euros each year with a few tricks up their sleeve.
Photo: Daria Nepriakhina on Unsplash
Taxes: The mandatory income, solidarity taxes and the optional church tax
The first and also the most substantial set of salary deductions on the German payslip fall into the more or less universal category of income tax (Lohnsteuer). As in most places around the world, one has no choice but to bite the bullet on this one – depending on your income level, of course, since the income tax in Germany is progressive. For an international resident in Germany earning a monthly gross salary of €5,500 (approx. $6000), for example, the income tax amounts to roughly €1,200 (approx. $1300), or 42 percent of the total net income, whereas taxable income of less than €9,169 (approx. $10,000) is zero for single households.
As with the income tax, Germany’s so-called Solidaritätszuschlag (literally Solidarity Surcharge) is a mandatory monthly tax (5,5 percent of total income tax) that all German medium- and high-income earners are obliged to pay. The additional fee, which was introduced as a temporary tax in 1991, is intended to cover the continuing costs of the German reunification. While mandatory at present, if you’re planning to stay in Germany long term – and will be earning less than €76,000 (approx. $84,000) annually – you’ll be happy to learn that this deduction is planned to be abolished by 2021.
The German Church Tax (Kirchensteuer), on the other hand, is completely optional – and actually rather easy to opt out of. Collected from employees before your payslip pings into your inbox, the Church Tax is 8 percent of paid income tax for residents of Bayern and Baden-Württemberg, and 9 percent for residents of all other Federal States of Germany. Those intending to opt out of this tax should pay a visit to their local municipality citizens’ office (Bürgeramt) for further assistance.
Photo: Open source
Social charges: Saving money with private health insurance
The final set of salary deductions on your payslip are the social charges. These deductions do allow for a certain wiggle room for expats and natives alike – especially for high-income earners. While pension insurance (Rentenversicherung), unemployment insurance (Arbeitslosenversicherung), and the nursing care insurance (Pflegeversicherung) are, as part of the German social security system, paid at a fixed-rate, the health insurance deduction, while mandatory, offers the opportunity for German residents to choose a private healthcare insurance over the public one offered under the German Government Health Insurance System (Gesetzliche Krankenversicherung or GKV).
As with the income tax, the public health insurance is based on your level of income, though there is an upper limit of €465 (approx. $515) per month for the portion paid by employees. In addition, it includes a substantial retirement premium that is not reimbursed once expats leave Germany. For these reasons, the public health insurance can be significantly more expensive for expats – especially if you are in the upper income bracket and are not planning to retire in Germany – than a private healthcare insurance (Private Krankenversicherung or PKV) offered by a German or international insurance company such as ottonova.
If you opt for private health insurance, this decision could save you money in other ways, too. While residents in Germany covered by public health insurance pay a small nominal fee for prescription medicines, with a private plan, like ottonova’s health insurance for expats, your costs are fully covered – you’ll be reimbursed for all medications as well as basic dental costs. Furthermore, full private health plans of this kind cover, as compared to the public insurance, offer a wider choice of medical and dental treatments, and private patients often receive a higher level of service at hospitals and are able to request an English-speaking doctor.
That said, it is worth noting that while the price you pay for private insurance is not based on your income level; it does take into account considerations including entry age and any pre-existing medical conditions. For example, an expat in good health who is working in Germany and making €5,500, a month (or €66,000 a year) stands to save around €300 (approx. $330) every month by opting out of the Church Tax and opting into a private health insurance such as the one offered by ottonova.
Learn more about what is included in ottonova’s health insurance plan for expats earning over €60,750 and how it could end up saving you a tidy sum of money each month.
This article was produced by The Local Creative Studio and sponsored by ottonova.