Income tax

Income tax is levied on the income of natural persons. In principle, income tax is collected from certain types of income through tax deduction, such as payroll tax and tax on capital gains.

Income tax applies to income

1. from agriculture and forestry,
2. from commercial activities,
3. from self-employment,
4. from employment,
5. from capital assets,
6. from letting and leasing, and
7. other income specified in Section 22 of the Income Tax Act (EStG), such as income from a state pension under the statutory pension scheme or from a private funded pension scheme, or income from private capital gains.

In the case of agriculture and forestry, commercial enterprises and self-employment, income is defined as profit. Profit is to be determined by comparing business assets, or as the surplus of business income over business expenses, or, in the case of smaller agricultural holdings, using standard rates. For other types of income, in order to determine the income, all expenses intended to generate, secure and maintain the revenue – such as income-related expenses – must be deducted from the revenue derived from the respective type of income. Expenses relating to living costs, such as those for food, clothing or accommodation, may not be deducted as business expenses or income-related expenses.

To determine the total income, positive and negative income may, in principle, be offset against one another without restriction both within a single category of income and across different categories of income.

Provided the statutory requirements are met, the following amounts are deducted from this total income:

• Age relief under Section 24a of the Income Tax Act (EStG) for taxpayers aged 64 and over
• Relief for single parents under Section 24b of the Income Tax Act (EStG)
• Tax-free allowance for farmers and foresters under section 13(3) of the Income Tax Act (EStG)

After these amounts have been deducted, the so-called total income remains.

Under certain conditions, the following amounts must be taken into account as deductions when determining income:

• Loss deduction under Section 10d of the Income Tax Act (carry-forward of losses, carry-back of losses)
• Special expenses under Sections 10, 10a, 10b, 10c of the Income Tax Act (EStG), for example, pension contributions, church tax, childcare costs, expenses for one’s own vocational training, school fees, maintenance payments to a divorced or permanently separated spouse or civil partner, and charitable donations
• Extraordinary expenses under Sections 33, 33a, 33b of the Income Tax Act (EStG), for example medical expenses, maintenance payments and expenses for vocational training, flat-rate allowances for disabled people, surviving dependants and carers

The maximum amounts deductible as special expenses for pension provision, for example statutory pension insurance contributions and contributions to one’s own pension scheme, amount to

• a maximum of EUR 23,724 in 2021,
• in 2022, a maximum of 24,100 EUR,
• in 2023, a maximum of 26,528 EUR,
• in 2024, a maximum of 27,566 EUR,
• in 2025, a maximum of EUR 29,344; and
• in 2026, a maximum of EUR 30,826.

For spouses and civil partners assessed jointly, the maximum amount is doubled. For employees, this amount must be reduced by the tax-free employer’s contribution to statutory pension insurance.

Contributions to private and statutory basic health and compulsory long-term care insurance, as well as contributions to other types of insurance, such as liability insurance, unemployment insurance and contributions towards ‘additional benefits’ in health insurance, are recognised as special expenses up to the following annual maximum amounts:

• for business owners or the self-employed: up to 2,800 EUR
• for employees and civil servants: up to 1,900 EUR

Basic contributions to health and long-term care insurance are fully deductible even if the maximum amounts are exceeded. In this case, however, the deduction for other types of provident insurance does not apply.

If you do not provide evidence of higher special expenses, a flat-rate amount of EUR 36.00 for single persons and EUR 72.00 for married couples or civil partners is deducted via the special expenses flat-rate allowance.

As a final step in determining your taxable income, any allowances for children under Sections 31 and 32 of the Income Tax Act (EStG) must be deducted from your income. In 2025, the child allowance amounts to EUR 6,672 (2026: EUR 6,828) and the allowance for childcare, upbringing or education costs amounts to EUR 2,928. As part of the family benefits adjustment, a check is carried out to determine whether child benefit or the tax allowances for children would be more favourable for you when your income tax is assessed. If deducting the tax allowances for children is more favourable for tax purposes, these are deducted from your income and any child benefit already received is offset against this.

In the case of a couple who are both subject to unlimited income tax liability but do not live together, child benefit is primarily paid to the person in whose care the child is. In principle, each parent receives half of the child allowance and, where applicable, half of the allowance for childcare, upbringing or education. Half of the child benefit is then offset against each parent’s tax liability. Under certain conditions, it is possible to transfer the child allowances to one parent.

The taxable income calculated in this way forms the basis for assessing income tax at the standard rates. The income tax calculated according to the tax scale, reduced by the domestic and, where applicable, foreign taxes to be credited, as well as any further tax relief – for example, for expenses relating to domestic employment and services – and increased by certain amounts, constitutes the income tax to be assessed.

The income tax advance payments made for this year, together with payroll tax and, where applicable, capital gains tax, are set off against the assessed income tax. If the final calculation results in a shortfall to your disadvantage, you must pay this amount as a final instalment. If the final calculation results in a surplus in your favour, this amount will be refunded to you.

The income tax you are liable to pay is determined by the income tax scale.

In 2025, it is structured as follows:

• Tax-free allowance up to a basic allowance of 12,096 EUR for single persons / 24,192 EUR for married couples or civil partners
• Tax rate of 14 per cent on taxable income from 12,097 EUR / 24,193 EUR (entry-level tax rate)
• Tax rate of up to 45 per cent on taxable income from 277,826 EUR / 555,652 EUR (top tax rate)

In the case of extraordinary income, you may claim tax relief to avoid hardship that may arise as a result of the progressive tax scale. In such cases, at least the introductory tax rate must be applied.