Which contributions do employers deduct from my wages in Germany?
Payroll tax, church tax, solidarity surcharge and social security contributions – all of these deductions reduce the amount of salary you receive each month.
To explain this in simple terms, we’ll use the example of Markus, who started his first job in 2021. Today, he is holding his pay slip in his hands for the first time and doesn’t quite understand why, of the €1,900 he negotiated with his boss, there is only just under €1,370 left to be paid out and it is this amount that is going into the 21-year-old’s account. There are a lot of abbreviations and misunderstood terms on the pay slip, so below we explain which deductions make the net salary significantly lower than the gross salary you agreed to with your employer.
Lohnsteuer, or wage tax
Markus earns 1,900 euros gross. As a single, he is assigned to tax class I. The amount of 144 euros per month in payroll tax is the largest deduction that Markus’ employer pays directly to the tax office.
Solidaritätszuschlag, or solidarity surcharge
Since 1991, employees in Germany have paid a solidarity tax, also known as “Soli”. However, the German government has made changes to this so that, starting in 2021, almost 90% of all employees no longer have to pay the solidarity tax. This also applies to Markus, as “Soli” now only applies to the highest income earners.
Kirchensteuer, or church tax
If, like Markus, you are a member of a religious community, you also pay church tax. The amount depends on your salary, but also on the federal state where you work. Markus belongs to the Evangelical Church and works in Hesse.
9% Kirchensteuer from 144.08 Euro Lohnsteuer = 12.96 Euro
If you work in Baden-Württemberg or Bavaria, you pay a church tax of 8% of your salary.
This money is used to pay for staff costs, to build churches and for charitable purposes such as caring for the sick. Other religious communities such as the Catholic Church, Jewish communities and other state-recognized religious communities also levy a church tax.
Krankenversicherung, or health insurance
If you fall ill, you go to a doctor, who diagnoses you and prescribes medication. The health insurance pays for this. This type of health insurance is compulsory in Germany, regardless of whether you are a member of a public or private health insurance fund.
All persons insured under the statutory health insurance scheme pay a health insurance premium of 14.6% in 2021. 7.3% is deducted directly from Markus’ salary and the remaining 7.3% is paid by his boss. On top of that, there is an additional contribution to the health insurance fund based on income. Markus’ health insurance company collects an additional contribution of 1.1%.
It used to be that employees like Markus had to pay the additional contribution to the health insurance fund themselves. However, this has changed in 2019. Now the boss also covers half of the additional contribution. In Markus’ case, this means that he pays 7.3% of the health insurance premium plus half of the additional premium, or 0.5%.
7.8% health insurance contribution on €1,900 gross salary = €148.20
Social insurance contributions – which include health, pension and care insurance – are paid half by the employee and half by the employer.
The cost of private health insurance is difficult to determine, as it depends on the benefits you wish to use.
Rentenversicherung, or pension insurance
Although Markus has only just started work, the state is already thinking about his future and obliges him to pay contributions to the statutory pension insurance. In this way, he will be secure in his old age because he will be entitled to an old-age pension.
9.3% pension contribution on € 1,900 gross salary = € 176.70
Markus’ employer must also pay €176.70 for pension insurance. Together, they therefore pay the equivalent of 18.6% of the gross wage for pension insurance. The same rate applies throughout Germany.
Pflegeversicherung, or long-term care insurance
If an employee requires care, then he or she benefits from care insurance. In 2019, the premium for this has been increased to a uniform level of 3.05%. One half of the premium is paid by the employee and the other by the employer.
1.525% care insurance premium on €1,900 gross salary = €28.98
There is one thing worth mentioning about the long-term care insurance: people who are 23 years old or older and have no children pay an additional 0.25%. But since Markus is only 21 years old, this surcharge does not apply to him yet.
In addition, in the state of Saxony, the employer and employee share of the contribution is different – employees have to cover a larger share of the contribution than employers.
Arbeitslosenversicherung, or unemployment insurance
In order for an employee to be covered in case of unemployment, he or she must also pay the related insurance premium each month. Civil servants and soldiers are exempt from this obligation, as are mini-job workers who earn no more than 450 euros per month. Markus does not belong to these professional groups and therefore has to pay this contribution.
1.2% unemployment insurance contribution on € 1,900 gross salary = € 22.80
As a rule, the employer will also pay half of the total amount corresponding to 2.4% of the gross salary in this case.
You can deduct all the insurance premiums that are shown on your payslip from your taxes.
Keep your German payslips – they may come in handy!
It is a good idea to keep your payslips. Markus, for example, just had to show his first pay slip to his landlord to prove that he had a regular income. Lenders also often require such proof. However, there is no legal requirement to keep these documents.
As a precaution, Markus plans to collect and keep monthly pay stubs, at least until he files his tax return and receives a written tax decision from the IRS. His employer, on the other hand, is obligated to keep the pay stubs.
Once a year Markus’ boss has to give him a so called Lohnsteuerbescheinigung, which is a payroll tax certificate. It lists the gross pay and any deductions, e.g. for health insurance or church tax. At the same time his boss sends this data electronically directly to the tax office.