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How Top Tax Rates are Handled in Germany

Many have unfortunately experienced the dread upon seeing the first red numbers on their bank statement, thus affirming that savings – like many things – are not infinite. Not everyone can rely on financially well-off parents, and most aren’t lucky enough to win the lottery.

Those who have come into a large sum of money thanks to their job or other circumstances have to bear greater tax burdens and top tax rates – there are, of course, some exceptions to this rule. You can learn more about this in this article.


High earners pay higher taxes

All German residents that earn more than basic tax-free allowance (Grundfreibetrag) in a given year are required to pay taxes. The amount of taxes due vary based on the amount that one has earned.

Income doesn’t only include wages from traditional employment – it can also include freelance income, capital assets, pension payments, etc. High earners owe more taxes than low earners, but if a single person earns more than 54,056 per year (as of 2017), they are subject to the top tax rate of 42%. For married couples being assessed together, this limit amounts to 108,112 euros per year.


When is one considered “rich?”

The word “rich” can be interpreted differently depending on who you ask. People who are surviving and getting by with only basic necessities and making ends meet might regard simply having enough for comfort as wealthy. In Germany, rich mostly refers to people driving a Mercedes-Benz and taking four vacations per year.

Legally, German taxpayers earning enough to push them into the highest tax rate have to pay 42 cents in taxes for each euro earned and those who learn less bear a lower tax burden. The top tax rate only applies to the income that exceeds the maximum amount.

There is an additional 45% tax rate for income exceeding 256,300 euros. This is often known as “wealth tax,” or “Reichensteuer” in German.


Not all top earners are subject to the top tax rate

Those subject to the top tax rate can claim allowances (Freibeträge) and a number of other expenses to be deducted from their gross salary and reduce their tax burden. If this leads to their taxable income sinking below the threshold for the top tax rate, they can reduce their tax burden.

Every 11th German citizen currently pays the top tax rate and contribute a considerable amount to the total income tax in this country – or more precisely, 48.2%.


To wrap it up:

  • The top tax rate in Germany is 42%
  • Approximately 4 million people pay the top tax rate in Germany
  • This rate applies to gross incomes of 54,056 or more
  • From 256,300 euros, 45% tax is due (“wealth tax”)