Taxation of employment income in Germany is part of the German income tax system. Income from employment () is one of the seven categories of income defined by the German Income Tax Act (Einkommensteuergesetz, EStG). It includes salaries, wages, bonuses and other payments or benefits received through employment.
Income tax on wages is normally collected through wage tax (). The employer calculates the tax, deducts it from the employee's pay and transfers it to the tax authorities. Wage tax is not a separate tax, but a method of collecting income tax on employment income during the year. The amount withheld depends partly on the employee's tax class and other electronic wage-tax characteristics.
Employment income Employment income includes regular salary or wages as well as other payments arising from an employment relationship. These can include bonuses, profit-related payments and benefits provided by an employer.
Employer-provided benefits Benefits provided by an employer do not have to be paid in cash to be taxable. Non-cash benefits can include private use of a company car, meals, accommodation, vouchers and goods or services provided free of charge or at a reduced price. The Income Tax Act contains specific rules for determining the taxable value of such benefits.
The Act also exempts certain employer-provided benefits from income tax. These include, subject to statutory conditions, some public-transport benefits, work-related training and the private use of employer-provided computer and telecommunications equipment.
Deductible expenses Employees can deduct qualifying expenses connected with their work (). Common examples include commuting, work-related travel, professional equipment, training, certain home-office costs and expenses arising from maintaining a second household for work purposes.
Employees automatically receive an employee lump-sum allowance () without having to provide evidence of individual expenses. As of 2026, the allowance is €1,230 per year. Employees whose qualifying expenses exceed this amount can claim the higher amount instead.
Wage tax withholding Employers normally deduct wage tax directly from each salary payment. Although the employee is liable for the tax, the employer is responsible for calculating, withholding and transferring it to the tax authorities.
For regular wages, the withholding calculation is based on an annualised amount. The employer takes the applicable allowances and wage-tax characteristics into account, calculates the corresponding annual wage tax and determines the amount attributable to the payroll period.
Annual wage tax is designed to correspond broadly to the income tax an employee would owe if employment income were their only income. The amount withheld can nevertheless differ from the final tax liability, for example when an employee has other income or deductions that were not reflected in payroll. Any difference can be settled through a German income tax return.
Tax classes Employees are assigned to one of six wage-tax classes (), which are used to calculate how much wage tax is withheld from their pay. The applicable class depends mainly on marital and family circumstances and, for employees with more than one job, on whether the job is the main or an additional employment.
Class Typical application I Unmarried employees and others who do not qualify for another class II Employees entitled to tax relief for single parents III One spouse in a married couple using the III/V combination IV The standard class for eligible married couples, normally used by both spouses V The other spouse in a married couple using the III/V combination VI A second or further job when an employee receives wages from more than one employer at the same time
For married couples, IV/IV is the standard combination. Eligible couples can instead choose III/V or use class IV for both spouses with the factor method.
The III/V combination is designed mainly for couples with unequal employment incomes. Its withholding calculation is based on an approximate 60:40 distribution of the couple's earnings, with the higher-earning spouse typically using class III and the lower-earning spouse class.
Tax classes affect how income tax is collected through payroll during the year; they do not determine the couple's final income-tax rates.
Electronic wage-tax characteristics (ELStAM) Germany administers most information used for wage-tax withholding through the electronic wage-tax deduction characteristics system (, ELStAM).
The system includes information such as the employee's tax class and number of child allowances. Other characteristics, including registered tax allowances and the factor used by married couples, can also be recorded electronically.
The Federal Central Tax Office stores and provides the electronic characteristics for employers to retrieve. Some characteristics are generated automatically from information held by public authorities, while others are added or changed by the tax office, including characteristics based on an employee's application.
Employers retrieve the relevant ELStAM when an employment relationship begins and use them when calculating wage tax.
Multiple jobs When an employee receives wages from several employers at the same time, one employment normally uses the employee's regular tax class. Wages from a second or further employment are generally subject to withholding under tax class VI.
The use of class VI prevents allowances already reflected in the main employment from automatically being applied again to additional employment. The employee's final tax liability is nevertheless determined under the ordinary income-tax rules. Cross-border employment Special rules apply when an employee lives in one country and works in another, or works in several countries. German residents are generally taxed on their worldwide income, while non-residents can be taxed in Germany on employment income connected with work performed there. Double taxation agreements can change these rules and determine which country may tax the income.
Tax treaties and place of work Under most German tax treaties, employment income can be taxed in the country where the work is performed.
The 183-day rule can provide an exception. Employment income may remain taxable only in the employee's country of residence if the employee stays within the treaty's 183-day limit in the country of work and the remuneration is not borne by an employer or permanent establishment there. The exact period used to count the 183 days depends on the treaty.
EU cross-border workers There is no single EU rule deciding which member state taxes a cross-border worker's salary. The result instead depends mainly on national law and the tax treaty between the countries concerned.
Residents of neighbouring EU countries such as Poland or the Czech Republic who commute to jobs in Germany therefore generally follow the ordinary treaty rules. Salary for work performed in Germany can usually be taxed in Germany. Some treaties contain special rules for frontier workers (). Germany has such rules with France and Austria, as well as with Switzerland.
Remote work can also affect where salary is taxed. A day worked from home in the employee's country of residence is generally treated as work performed there, while a day worked in Germany is generally treated as a German workday.
EU law also protects cross-border workers against discriminatory tax treatment. In some cases, a person who earns most or all of their income in another member state can qualify for tax allowances similar to those available to residents.
International assignments Special rules can apply when an employee is temporarily sent to work for a company in another country. For example, an employee of a foreign company may spend several months working for a German company within the same corporate group while remaining on the foreign company's payroll.
In such cases, the company that formally employs and pays the employee is not always treated as the employer for German tax purposes. A German host company can be treated as the employer if it ultimately bears, or should bear, the cost of the employee's remuneration. This can apply even if the employment contract remains with the foreign company and the salary continues to be paid from abroad.
See also
Income tax in Germany Tax return in Germany Social security in Germany
References