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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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MONEY

What to know about cryptocurrency in Germany

Germany has been dubbed the most crypto-friendly country in the world. We break down why that is, and what you should know about cryptocurrency in Germany.

What to know about cryptocurrency in Germany

As with all of our financial and tax summaries, this is a guide on regulations only. For financial advice which is personalised to your situation, please contact an accountant or other specialist. Please note also that EU financial regulators have warned that many crypto-assets are highly risky and speculative. Find out more information here.

At first glance, Germany seems an odd place to be a cryptocurrency haven. Only 17 percent of people in Germany invest – way behind the percentages seen in other countries – which may go some way towards justifying the country’s reputation as a land of risk-averse savers.

Cryptocurrency, often called crypto for short, is considered by many investment analysts to be one of the riskiest and most volatile investments a person can own.

Concerns have also been raised over the environmental impact of cryptocurrencies.

There are countless types of crypto on the market these days. What each one has in common is that it is digital and secured using cryptography, meaning they can’t be counterfeited. 

Even the three biggest and most well-known cryptocurrencies – Bitcoin, Ethereum, and Ripple – are prone to huge sudden spikes and falls in value. It’s also a market that has seen some, like the LUNA cryptocurrency last month, crash completely.

Yet, bucking national stereotypes, Germany has some of the most favourable laws in the world for investing in these high-risk assets.

READ ALSO: What you should know about investing in Germany

Germany’s crypto tax advantages

Crypto exchange comparison site Coincub recently named Germany as the world’s most crypto-friendly country, with Singapore and the United States rounding out the top three.

A big reason for this comes down to favourable tax laws. Normally, when someone in Germany sells a regular stock or ETF asset at a higher price than they bought it for, their brokerage will automatically withhold 25 percent of their gain in tax.

Euro notes bitcoin coins

Euro notes and bitcoin coins on a laptop. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

But following tax guidance issued by the Federal Ministry of Finance last month, certain gains in cryptocurrency could face absolutely no taxation at all.

Firstly, the ministry has affirmed that any profit of less than €600 faces no tax. More significantly though, cryptocurrency that someone in Germany has held for at least a year faces no tax at all – no matter how big the gain is when that person sells it.

Why is the law so favourable in Germany?

One variable is political. The liberal Free Democrats tend to attract a sizeable number of votes from the very demographics more likely to hold crypto. While the FDP is in a three-way coalition with the progressive Social Democrats (SPD) and the Greens, FDP leader Christian Lindner currently holds the German Finance Ministry.

During the 2021 election campaign, Lindner made regulating and attracting crypto investment a big part of the FDP platform and coalition negotiations.

“I think the German government understands how to make money better than a lot of other countries,” says the man behind crypto Youtuber The Modern Investor, a channel with over 225,000 subscribers.

“A lot of people in the crypto space are very internationally mobile,” he tells The Local. “If they choose to live in Germany for the favourable investing conditions, they’re going to be spending money in German supermarkets and buying German services. The money the government misses out on in taxes tends to go right back in the system.”

“If cryptocurrencies continue to take off globally, Germany will eventually be seen as a genius for figuring out how to attract this money and keep it within its borders,” he adds.

Germany’s crypto niche to go mainstream?

Cryptocurrency is still a niche investment in Germany. While only 17 percent of Germans own stocks, only about 2.6 percent own cryptocurrency.

German crypto investors typically skew younger, with a third of all German crypto investors being 34-years-old or younger. The more a person makes, the more likely they are to hold crypto as well, with two-thirds of all German crypto investors earning €800,000 a year or more.

That narrow niche is still big within the crypto community itself though. Around nine percent of the world’s Bitcoin nodes – the computers that run the secure list of transactions using that currency on a digital ledger known as the blockchain – are in Germany, and 14 percent of Ethereum nodes, another major cryptocurrency. That’s second only to the US.

Cryptocurrencies

A tablet screen displays the value of various cryptocurrencies in the Coinbase app. Photo: picture alliance/dpa | Fabian Sommer

Yet, while German ownership is still small, the community is visible enough to make others curious. That goes for even the traditionally risk-averse savings banks, or Sparkassen – where many Germans park their savings. The Savings Bank Association says around 10 percent of its regular customers already hold cryptocurrency, leading them to start offering customers the chance to invest in a crypto wallet directly from their checking accounts.

Many of the online brokerages popular with Germany-based investors, such as Trade Republic, Scalable, and DKB, also offer cryptocurrency wallets alongside their options to buy more traditional products like stocks and ETFs. Using their smartphone apps, crypto can typically be bought and sold with a few short clicks.

READ ALSO: How to protect your savings against inflation in Germany

The Modern Investor says that’s part of a culture that’s increasingly viewing crypto as just another normal part of the investing landscape. While crypto suspicion is still high globally, Germany has simply chosen to accept that crypto is here to stay, and has decided to benefit from it. 

“Germany has been one of the very few countries that have actually put forth cryptocurrency regulations. So a lot of internationally mobile investors have run to Germany as a bit of safe option,” the Youtuber says.

“Many countries don’t have any regulations at all. That makes things even less predictable. What happens to a crypto investor in the US or China if either of those countries simply ban it tomorrow? With Germany, people know that’s simply not going to happen now.”

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