What is meant by income tax (Einkommensteuer)?
Income tax is a tax levied on the net annual income a person earns.
The more you earn, the higher your tax rate becomes – this is called the progressive tax system (Progression).
Among others, the following groups are subject to income tax in Germany:
Employees (Arbeitnehmer)
Self-employed persons (Selbständige / freelancers)
Business owners (Unternehmer)
People who receive rental income
People who receive interest, dividends or share profits
The tax rate depends on your annual taxable income.
For 2025 (simplified and approximate), the following scale can be used as an example:
| Annual taxable income | Tax rate |
|---|---|
| up to €11,604 | 0 % – tax-free |
| €11,605 – €66,760 | approx. 14 % to 42 % (progressively increasing) |
| €66,761 – €277,825 | 42 % (top tax rate) |
| above €277,826 | 45 % (“rich tax” / high-income rate) |
These figures are approximate and may change from year to year depending on government adjustments.
For employees, the tax is deducted directly from the salary by the employer as
wage tax (Lohnsteuer) and transferred to the tax office each month.
Self-employed persons and business owners must file an annual tax return (Steuererklärung),
declaring all income and allowable expenses. The tax office then calculates the final income tax due.
There are many deductions and expenses that can reduce your taxable income, such as:
Work-related expenses (Werbungskosten) – e.g. commuting costs
Insurance contributions (health insurance, pension insurance, etc.)
Donations to recognised charities
Childcare costs (e.g. nursery, childminder)
Other special expenses and extraordinary burdens, where applicable
The more of these costs you can legitimately claim,
the lower your taxable income – and thus your final tax bill – will be.
Einkommensteuer: income tax on your annual earnings
Lohnsteuer: wage tax withheld directly from employees’ salaries
Steuererklärung: annual tax return submitted to the tax office
Freibetrag: tax-free allowance deducted from your income
Progressionssystem: progressive tax system where the tax rate rises with income
The editorial team of our website strives to provide accurate information based on thorough research and multiple sources. Nevertheless, errors may occur or some details may not be fully confirmed. Please treat the information in this article as an initial guide only and always consult the competent tax office or a professional tax advisor for binding and up-to-date information.
