Einkommensteuer, literally translated as “income tax,” is a tax levied on the income of individuals in Germany. It is a fundamental part of the German tax system, affecting most residents and workers within the country.
What is “Einkommensteuer”?
Einkommensteuer is a direct tax on the income of natural persons, including wages, salaries, and other forms of income. It is collected by the German tax office (FinanzamtThe Finanzamt, literally translated as "Finance Office," is a term that newcomers in Berlin will encounter frequently. It refers to... More) and is based on the principle of progressive taxation, meaning the tax rate increases as the taxable income increases. The legal basis for Einkommensteuer is the Einkommensteuergesetz (EStG), or the Income Tax Act. This tax is relevant for anyone earning income in Germany, including employees, self-employed individuals, and business owners. It is important to note that Einkommensteuer is different from LohnsteuerThe term "Lohnsteuer" translates to "wage tax" in English. It refers to the income tax that is deducted directly from... More, which is the wage tax deducted directly from an employee’s salary by the employer[1][2].
More information about “Einkommensteuer”
The Einkommensteuer system recognizes seven types of income: income from agriculture and forestry, trade/business, self-employed work, employment, capital assets, renting and leasing, and other sources such as pensions and private sales. Certain types of income, like lottery winnings and gifts, are exempt from Einkommensteuer. Taxable income is calculated by subtracting allowable deductions, such as special expenses and child allowances, from the total income[2]. The tax rates are progressive, starting from 0% for income below a basic allowance and reaching up to 45% for very high incomes. Additionally, there are specific allowances and deductions available that can reduce the taxable income[1][2][6].
Related to “Einkommensteuer”
Here are some additional terms that are related to Einkommensteuer:
- LohnsteuerThe term "Lohnsteuer" translates to "wage tax" in English. It refers to the income tax that is deducted directly from... More: The wage tax that is directly deducted from an employee’s salary by the employer.
- SolidaritätszuschlagThe Solidaritätszuschlag, or "solidarity surcharge" in English, is a tax levied in Germany on top of the income and corporate... More: A solidarity surcharge that is an additional tax levied on Einkommensteuer and Körperschaftsteuer (corporate tax) to finance the costs of German reunification.
- KirchensteuerKirchensteuer, or church tax, is a unique financial obligation in Germany, translating literally to "church tax" in English. What is... More: Church tax that members of certain religious congregations pay, which is calculated as a percentage of their Einkommensteuer.
- FreiberuflerFreiberufler, literally translated as "freelancer" in English, refers to self-employed professionals in Germany who offer specialized services based on their... More: Freelancers or professionals who are self-employed in certain occupations, such as doctors, lawyers, and artists, and are subject to Einkommensteuer on their income.
Understanding Einkommensteuer is crucial for anyone living and working in Germany, as it affects the majority of income earners in the country.