2 Deductions from your German payslip
Your gross salary is NOT what you get paid as net income to your bank account. Grab your German payslip & see exactly what is being deducted.
- Payslips in Germany have a very standardized structure and therefore look more or less the same (2 large deductions)
- The first deduction is different types of taxes (income tax based on your tax class + eventually solidarity & church tax)
- The second big deduction is German social security (health, care & unemployment insurance as well as public pension)
- With the average German salary of 4.000€/month, there will be a 37% difference between gross salary & net income
Introduction: The German Payslip
The average German gross salary is around 4.000€ per month. While that is the amount that is mentioned in your employment contract, that is not what you get paid to your bank account. The abbreviations on your German payslip make it very difficult to understand what is actually deducted, which is why this PerFinExplains article will shed some light on the major deductions:
- Lohnsteuer: Income tax
- KV: Health insurance (public or private)
- RV: German public pension
- AV: Unemployment insurance
- PV: Care insurance (as part of health insurance)
Even though there are a couple of different payroll software providers in Germany, all German payslips look more or less the same and follow the same logic. So feel free to take your payslip if you want to see what you are actually paying for and why the difference between your gross salary and your net income is so big.
1st Deduction from your German payslip: Taxes
The first major deduction from your German payslip is the potentially three different types of taxes: Income tax based on your income tax class, church tax if you are a member of the church, and solidarity tax if your salary is +6.300€/month. The line that calculates your tax deduction shows multiple different columns:
- The first number in your tax deduction line shows how much of your salary is subject to taxes. Generally speaking, the first number will show your entire gross salary (see your personal income tax rate in the graph below).
- The second number is income tax. Based on your income tax class there can be a wide range of taxes you actually have to pay. With the average German salary of 4.000€/month, your income tax could be as low as 338€ (in tax class 3) or as high as 1.075€ (in tax class 5). Calculate your income tax with your tax class and salary here.
- The third number is church tax. Based on the German state you are living in, you will pay an additional 8% or 9% on top of income tax as church tax. Leaving the church will therefore increase your net income, and these other tips will help you to save thousands of Euros every year.
- The fourth and last number is solidarity tax (Solidaritätszuschlag). After the tax cut in 2020, about 90% of the German population do not pay solidarity tax anymore. Only with a salary of +6.300€/month you will start paying solidarity tax (solidarity tax calculator here). If you have other types of income aside from salary (e.g. company earnings, capital gains from investments like ETFs or stocks, etc) you will still pay solidarity tax as well.
With the average German gross salary of 4.000€ monthly, you will have a surprisingly low tax rate of 16,5% only. That is because there is a difference between the average income tax rate and the maximum income tax rate. In Germany, the maximum income tax rate is between 0% and 45% as seen in the graph below. With our 4.000€ gross salary, the official calculator of the German Ministry of Finance shows a maximum income tax rate of 30% (blue line), but only an average income tax rate of 16,5% (purple line).
How much money can you save by switching from public health insurance to private health insurance? Let’s find out together.
Conclusion: Net Income With 4.000€ Gross Salary
After deducting taxes and social security, the average German earner is left with 2.535,25€ net income from his 4.000€ gross salary. That is a total deduction of 37% that is paid to the German government and Finanzamt. Unfortunately, there is not a lot that can be done in order to increase your net income. However, you can save thousands of Euros every year in taxes and social security while improving your financial future at the same time:
- A Riester pension level 2 will reward you with tax benefits, as well as 175€ adult bonus & 300€ kids bonus every year
- Filing a tax declaration in Germany gives 9 out of 10 people an average of 1.051€ in tax refund
- A Rürup base pension level 1 will reward singles with up to 25.639€ in tax benefits & married couples with benefits up to 51.278€
- Investing in a rental property can potentially save you an unlimited amount of taxes
If you would like to know what is best for you to increase your net income, feel free to book a free meeting with us.