Taxation and Finances

Taxes in Germany may seem complex at first, but understanding the basics can save you time and money, especially as a state employee. Here's a breakdown of key points to remember:

  • Know your tax ID: After your initial registration in Germany, you will receive a letter via post within a couple of weeks with your tax identification number, which is important for the HR department, for opening a bank account and for filing taxes. You will keep the same tax ID for life, so keep the letter in a safe place. If you were previously registered in Germany, you will already have been assigned a tax ID.
  • Tax classes: As a taxpayer, you belong to a certain tax class which determines the final tax rate you have to pay.
  • Tax report: It is beneficial to file a tax report. This way you can get a refund from the state.

Unlike some countries, filing taxes in Germany, even when you're not expecting a refund, is highly recommended, especially in your first year of employment. The German tax system offers various deductions and allowances that can significantly reduce your tax burden. By filing, you ensure you receive any reimbursements you're eligible for.

Tax Classes

The German tax system categorizes taxpayers into different classes, each with specific tax implications. The main tax classes are as follows:

  1. Tax Class I (Steuerklasse I):
    • Applicable to single individuals.
    • Also used for individuals who are divorced or widowed and have not remarried.
    • Individuals in Tax Class I do not receive any special tax benefits.
  2. Tax Class II (Steuerklasse II):
    • Designed for single parents.
    • Provides a higher tax-free allowance, helping to reduce taxable income for single parents.
  3. Tax Class III (Steuerklasse III):
    • For married individuals or those in a registered civil partnership whose spouse or partner is in Tax Class V.
    • Generally results in a lower tax deduction from gross salary, leading to higher net income.
  4. Tax Class IV (Steuerklasse IV):
    • For married individuals or those in a registered civil partnership where both partners earn roughly the same income.
    • This is the default tax class for married couples unless they choose different tax classes.
  5. Tax Class V (Steuerklasse V):
    • For the lower-earning spouse or partner in a marriage or registered civil partnership where the other partner is in Tax Class III.
    • Results in a higher tax deduction from the gross salary.
  6. Tax Class VI (Steuerklasse VI):
    • Applies to individuals who hold multiple jobs simultaneously.
    • Typically used as a secondary tax class for additional income.

Understanding "Kirchensteuer"

Be aware of the Kirchensteuer, a church tax levied in Germany. Your employer is legally required to ask about your religious affiliation during the employment process solely to determine your Kirchensteuer status. This might seem unusual, especially if you're from a country where such questions are not typically asked. However, this inquiry is purely for tax purposes and does not impact your employment eligibility or involve any form of discrimination.

Additional Information

Additional Information

  • Taxpayers can change their tax class under certain circumstances, such as marriage, divorce, or the birth of a child.
  • Changing tax classes can affect the amount of income tax withheld from your salary.
  • While tax classes determine monthly income tax withholding, your actual income tax liability is calculated based on your total annual income through the income tax return process.

📊 Survey Results "Tax reports"

Other tools that are commonly used include:

  • Buhl Steuer Tool (WISO Steuer)
  • SmartSteuer

Additionally, different software varies in user complexity, which could explain the varying amounts of time spent using each software. 

If you prefer personal support, you could consult a so-called Steuerhilfeverein (tax assistance association). A Steuerhilfeverein offers personalized tax advice, helping you navigate Germany's tax system with expert guidance, which software may not fully provide. They ensure accuracy, answer specific questions, and handle complex situations. It is often more affordable than hiring a private tax consultant.

 

⚠️ Please note: Failure to submit a tax return may result in costs or refusal of entry if you re-enter the country at a later date! 

💭 What Others Say…

💭 It is definitely worth trying...one learns a lot about German bureaucracy

💭 If a person starts working in the middle of the year or towards the end, tax return is highly recommended

💭 Elster online already fills out a lot for you automatically (Abruf von Bescheinigungen www.elster.de/elsterweb/infoseite/belegabruf_(privatpersonen). I don't know if you can change everything to English, though.

💭 Taxfix works quite smoothly (good English support), but they charge 40 euros for filing which becomes cheaper with a referral.

💭 Elster might not be the best tool, very formal, I checked a hundred times to make sure I did everything correctly

💭 I tried my hand at filling out my own tax report the first time around 10 years ago on my own and it was very stressful and I did not manage to get back that much amount of money. Therefore, I became a member of a Lohnsteuerhilfeverein and, by paying an annual membership fee of around 200 EUR, I manage to get taken care of my tax returns professionally. For me the money is worth not having that added stress and also, on top of the money that you get back, I can rest assured that my tax papers are in order in case I need those papers to verify something either in Germany or in my home country at some future date.'

German Bank Account

If you plan to live in Germany for a while, you will likely need to open a bank account. There are many banks to choose from, each offering different options. Some of the most popular choices among your colleagues are:

Other banks used are:

  • ING
  • Deutsche Bank
  • Revolut
  • Sparda-Bank
  • Tomorrow
  • Comdirect
  • GLS
  • Volksbank
  • Vivid

💭 What Others Say…

💭 Revolut + N26 is a great combo for Germany

💭 Before moving to Germany, I found it helpful to open a Revolut account, which gives you a card with different currencies you can use and exchange between at no fee.

💭 Tomorrow Bank which is an online bank is quite convenient. While they charge 3 euros a month as fees, they only need your “Anmeldung” and not the residence permit unlike N26 or many other banks. Revolut is another online option which works well.

💭 I can really recommend N26, it was relatively easy to get an account with them, and they're quite modern and the app is nice with some auto-savings features, etc. I think the only downside is that their debit card is not an "EC Card", and some places only accept EC cards, but I think you can request an EC card for 10 euros or something from N26. Used the card abroad as a debit card to withdraw cash with no problems, and transferring money was also pretty painfree.

💭 Use a Tagesgeldkonto/deposit and not just a usual bank account to fight inflation and get some interest rate for your money :)