2 Deductions From Your German Payslip

Key Takeaways

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).

2nd Deduction from your payslip: Social security

The second major deduction from your German payslip is by far the biggest deduction: The 4 pillars of the German social security system. The fifth pillar, the public accident insurance (not private accident insurance), is paid entirely by your employer so it is not shown on your payslip. As with the tax deduction, the left side of the line shows how much of your salary is subject to the respective social security deduction:

The first pillar of German social security is (public) health insurance. Gross salary up to 4.987,50€ per month is subject to public health insurance (in 2023). Salary above that is free of public health insurance. You pay half of 14,6% of your salary for public health insurance as well as an additional contribution that ranges between 0,4% – 1,6% based on the efficiency of your public health insurance company (1,2% for Techniker Krankenkasse in 2022).
As part of health insurance, you are also paying for care insurance. People insured in public health insurance are also insured in public care insurance, and privately insured people are also insured in private care insurance. The two insurance combined make up German health insurance. You pay half of 3,4% for public care insurance, so actually 18% of your gross salary for public health insurance (plus additional public health insurance contribution).

So with the average German salary of 4.000€ monthly, you would pay half of 774€ (or 19,35% of your salary) for public health insurance and public care insurance. With a gross salary of +5.550€ monthly (in 2023), you have the freedom to exit the public healthcare sector and switch to private health insurance (with up to 45% cashback). If you are wondering which of the hundreds of private health insurance plans in Germany is the best for you, we can help you figure that out in a free meeting.

The third pillar of German social security is the public pension. Gross salary up to 7.300€ per month is subject to public pension (in 2023). You pay half of 18,6% of your gross salary as a mandatory contribution. Germany offers many different pensions. However, every employee is forced by the German government to pay into social security. Only self-employed people and business owners have the right to exit social security (under certain conditions).
The fourth and last pillar of German social security is unemployment insurance which you pay half of 2,6% of your gross salary for (the same maximum salary as public pension). Unemployment insurance will pay out certain benefits if you paid in long enough and lost your job (not if you resign yourself). The requirements can be checked with your local job center here.

With our example of 4.000€ monthly gross salary, you are paying a total of 807€ for German social security. Another 807€ is paid by your employer, totaling a contribution of 1.614€ or 40,35% of your gross salary. That makes social security by far the biggest deduction from your German payslip. The only way to save money is for people earning +5.550€ gross salary per month by switching to the private health insurance system.

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.

2 Deductions from your German payslip