1. Einkommensteuer (income tax)
What is it?
Einkommensteuer is the general income tax levied on all types of income an individual receives within a year.
It includes, for example:
salaries and wages from employment
profits from self-employment or freelancing
rental income
bank interest and investment income
other taxable income
Who pays it?
All individuals who are tax residents in Germany and earn income, including:
employees
self-employed persons and freelancers
business owners
landlords and investors
When is it calculated?
Income tax is finally calculated once a year through your annual tax return (Steuererklärung).
You submit your tax return to the Finanzamt (tax office).
The tax office then determines how much Einkommensteuer you actually owe for the entire year.
2. Lohnsteuer (wage tax / payroll withholding tax)
What is it?
Lohnsteuer is not a separate tax, but rather a withholding of income tax that is deducted monthly from an employee’s salary.
It is calculated based on your tax class (Steuerklasse) and withheld directly by your employer.
Who pays it?
Only employees (Arbeitnehmer) are subject to Lohnsteuer.
The employer (Arbeitgeber) is responsible for deducting it from your gross salary (Bruttolohn) and transferring it to the Finanzamt.
Why does Lohnsteuer exist?
To avoid having to pay your entire income tax in one lump sum at the end of the year.
Instead, tax is paid month by month in advance.
When you file your Steuererklärung, the Finanzamt checks whether you have paid too much or too little through Lohnsteuer and adjusts accordingly.
Summary – key difference:
| Aspect | Einkommensteuer | Lohnsteuer |
|---|---|---|
| What does it cover? | All types of annual income | Only employment income (salary/wages) |
| Who is affected? | All taxpayers (employees, self-employed, landlords, investors, etc.) | Employees only |
| How is it paid? | After yearly calculation via tax return | Deducted monthly from your salary |
| Refund possible? | Yes – via annual tax return | Yes – it is a prepayment towards income tax |
Example:
An employee earns €3,000 gross per month:
Around €400 Lohnsteuer may be withheld each month.
At the end of the year, they file a Steuererklärung.
If the tax office finds that they overpaid, they receive a refund of income tax.
Our editorial team strives to provide accurate information based on thorough research and multiple sources. However, errors may occur or some details may not yet be fully confirmed. For that reason, please treat the information in this article as an initial guideline only and always consult the competent authorities or a professional tax adviser for binding and up-to-date information.
