Tax structure in Germany for Employees explained
A Bluecard holder pays a decent amount of money as tax and contribute well to the German economy. Here, Income tax (Lohnsteuer) is automatically deducted from your salary and further transferred to tax office (Finanzamt). As you are employed (Blue Card holder), you don’t need to worry about any deadline for tax declaration as tax is already deducted from your monthly salary. Instead, You should be concerned more about how to claim maximum tax refund every year.
Free tax limit
There is a threshold income up to which your income is tax free (Data for 2020).
- Unmarried- 9,408 €.
- Married/Civil partnership- 18,816 €.
If your income is higher than the above amount, you must pay tax on it ranging from 14 to 42 % depending upon your Income and Family status.
Income tax declaration and Refund
According to Federal statistical office, 9 out of 10 receives an average tax refund of 900 €. So, it’s worth to declare your tax and claim for all the deductibles from your taxable Income.
Obligation for Tax Declaration
You are obliged to declare tax until July 31st of the following year, If you had following changes in current year,
- Change in Family status
- Married- Couple with tax combination of III and V.
- Divorced and re-married in the same year.
- Change in Income
- Change in Employer.
- Apart from current employment, if you have additional Income worth more than 410 € annually (Rented or leased Property etc).
- If you applied for tax exemption (Freibetrag).
- Received Social benefits (Unemployment benefits, Elterngeld, Krankengeld etc) worth more than 410 € annually.
- Extra Mini Job.
- Self Employed.
Read Here: How to extend Tax deadline
Read Here: Find your tax class in Germany
Free Options to file income tax declaration
- You can collect the tax declaration forms from your tax office or download them from the tax office Website and print them out and submit to Finanzamt. Here is a link with English Instructions. (yellow section)
- Elster (Elektronische Steuererklärung) – ElsterFormular is a free software issued by the Finanzamt available online for free here. After completing the form, it should be duly signed and sent to local Finanzamt.
Paid options to file Income tax declaration
- Online platforms – wundertax, Steurgo etc. with English Instructions.
- Find a Tax consultant nearby.
- Lohnsteurhilfeverein – It’s an association which provides tax consultation and further file your Income tax every year. The annual membership fee depends upon your annual Income.
- Buy any standard tax calculation program.
- If you are employed and doesn’t fall under special cases mentioned above due to change in Family and Income situation, you are not obliged to make a tax declaration.
- If you are employed and doesn’t fall under special cases mentioned above due to change in Family and Income situation, you can file any tax refund for the current year up to 4 years from now.
- If you are obliged to file the tax declaration for last year and further you miss the deadline of July 31 this year, then a Tax consultant or Lohnsteurhilfeverein can file your tax until February of next year without any fine amount.
- Late surcharge fee- If you still miss the deadline of February next year, you will be charged at least a surcharge fee, minimum of 25 € per month until you file the tax. for eg when you file tax for last year in April (next year), you pay a surcharge fee of at least 2 X 25 € = 50 € (March + April).
- Penalty fee– Finanzamt can also issue a late fee ranging from 100-500€ depending upon your past record of submitting tax declaration. This fine is initially sent as a warning via post and if you still doesn’t take care of the tax deadline, then you will be obliged to pay the penalty fee.
- If you fail to respond to recurring deadline reminders from Finanzamt, they can file an unfavourable tax declaration on your behalf. So you pay more tax than you have to!!
- It can take even up to six months to get your tax refund credited. If you are still worried, don’t hesitate to contact your local Finanzamt via Email or personally.