Tax System in Germany

How much income tax should you pay in Germany?

This is a question which has been asked by many investors and entrepreneurs willing to work and reside in Germany. Before we answer this question, we should say that in Germany people are categorized in different tax classes based upon their marital status and the existence of children which will be explained further in this article.

We should also note that the tax in each class should be paid only if the income has surpassed the minimum annual amount set by the tax office which is also called basic tax allowance, meaning if your annual income is equal or less than this minimum, you are not obligated to pay income tax in Germany. 

For example in 2020, this minimum annual income was set to be 9,408 € for a single person, and 18,816 € for married couples.  If your annual income in Germany exceeds this amount, you should definitely pay income tax based on your tax rate, determined by your tax class.

Your income tax rate will determine your income tax amount based upon the difference that your annual income and the basic tax allowance create. This rate will change in the range of 14% to 44%. Bear in mind that the higher rates are applicable to higher annual incomes and is not very common. For example a married person who has to pay 44% of his income as tax, should have at least the annual income of 508,894 € which is not happening very often. In addition there are other legal solutions to optimize your tax amount such as going under the umbrella of a corporation.

Also for the people who ask a lot about minimum eligible tax payment  in terms of the requirements set by the immigration offices, the answer is that these offices check your income more than your paid tax. However, since there is a correlation, we can explain as follows:
The income and tax should be only compatible with the family costs. For example assuming a gross salary of around 50k € for a family of four in a city such as Berlin, here is our estimate:
You might get a not big , not very small flat and not really perfectly in the city center. In this scenario, you should put 5k € aside for tax, and 10k € for different types of insurance, which leaves 35k € as your net income equivalent to almost 2,900 € monthly. If you add the children allowance (2 children) you will get 3,300 € monthly. 
You should spend around 1,600 € on rent, energy, and heating,  and the rest will be left for food and transport. (considering your spouse, will not work at all)