How to minimise your salary deductions while working in Germany

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 after deductions) and your gross income (your wage before deductions) is 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. You can also find out how you can save thousands of euros each year with a few simple tips.

Are you self-employed or an employee earning above €69,300 per year in Germany? Get private health insurance from ottonova  

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, you have 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 €5,800 (approx. USD 6,200), for example, the income tax amounts to roughly €1,550 (approx. USD 1,650), or 42 percent of the total net income, whereas the taxable income of less than €11,604 (approx. USD 12,350) is zero for single households. 

As with income tax, Germany’s so-called Solidaritätszuschlag (literally ‘solidarity surcharge’) is a monthly tax (5.5 percent of total income tax) that all German high-income earners have to pay. The additional fee, which was introduced as a temporary tax in 1991, is intended to cover the continuing costs of German reunification.

Since 2021, the solidarity surcharge has been abolished for almost 90 percent of taxpayers due to the increase in the exemption thresholds. If you are earning less than €73,000 gross annually, you’ll be happy to learn that this deduction doesn’t apply to you.

German church tax (Kirchensteuer), on the other hand, is completely optional – and actually quite easy to opt out of. You’ll only have to pay this tax if you are a member of the Catholic or Protestant church.

Collected from employees before your payslip pings into your inbox, church tax constitutes eight percent of income tax collected 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.

Social charges: save money with private health insurance

The final set of salary deductions on your payslip are the social charges. However, these deductions do allow for wiggle room for expats and natives alike – especially for high-income earners.

Pension insurance (Rentenversicherung), unemployment insurance (Arbeitslosenversicherung), and nursing care insurance (Pflegeversicherung) are, as part of the German social security system, paid at a fixed rate. However, with the mandatory  health insurance deduction, residents in Germany can choose private healthcare insurance instead of the public one offered under the German Government Health Insurance System (Gesetzliche Krankenversicherung or “GKV”). 

As with the income tax, public health insurance is based on your level of income, though there is currently an upper limit of €541 (approx. USD 575) per month for the portion paid by employees (maximum rate without employer’s contribution is currently €1,050). However, contributions are rising continuously and so is the maximum premium in the statutory health insurance scheme.

Due to the income-dependent calculation of the contribution, public health insurance can be significantly more expensive for expats (and non-expats) than private healthcare insurance (Private Krankenversicherung or “PKV”) offered by a German or international insurance company such as ottonova. 

Are you self-employed or an employee earning above €69,300 per year in Germany? Get private health insurance from ottonova

With a few handy hints and a little advice, you can maximise your monthly German paycheck. Photo: Brooke Cagle / Unsplash

Choosing private health insurance can save you money in other ways too. Public health insurance in Germany usually doesn’t cover visual aids, professional dental cleaning or worldwide travel insurance and repatriation. But with a private plan, like ottonova’s health insurance for expats, these costs are generally covered.

As well as offering a wider choice of medical and dental treatments, private patients often receive a higher level of service at hospitals and can request an English-speaking doctor.

That said, it is worth noting that the price you pay for private insurance is not based on your income level but 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 €69,300 a year (annual income threshold for employees to be eligible for private health insurance) stands to save more than €300 (approx. USD 320) every month by opting out of the church tax and opting into a private health insurance plan such as one offered by ottonova.

Learn more about what is included in ottonova’s health insurance plan for expats earning over €69,300 per year as an employee and how it could end up saving you a tidy sum of money and providing you with excellent health coverage.