Moving To Germany Series : 7/15 Taxes in Germany (2025): What Every Newcomer Must Know

EuroXpat
Apr 27
3 min read

Understanding how taxes work in Germany is critical for every employee, freelancer, or student working part-time. 🇩🇪

The German tax system is detailed, bureaucratic — and yes, complicated! — but learning the basics will save you money, stress, and potential legal trouble.

Here’s a full, easy-to-understand guide to the German tax system in 2025.

📈 Why Is Navigating Taxes So Important?

Taxes directly affect your net income (take-home salary).
Filing a tax return could bring you hundreds or even thousands of euros back in refunds.
Freelancers and business owners have special tax obligations — including advance VAT payments.
Tax compliance is legally required; mistakes can lead to fines or audits.

🔔 Good news: Germany offers generous deductions for education, moving costs, childcare, commuting, and even home offices!

🧾 Key Elements of the German Tax System

🏦 1. Income Tax (Einkommensteuer)

If you work or earn money in Germany, you’ll likely pay income tax.

Germany uses a progressive tax system: the higher your income, the higher your tax rate.

Annual Income (2025)	Tax Rate
Up to €12,096	0% (Tax-Free Allowance)
€12,097 – €62,809	14% – 42%
€62,810 – €277,825	42%
Over €277,826	45% (Top Rate)

💡 Important 2025 Update:

The tax-free personal allowance (Grundfreibetrag) increased to €12,096, meaning more of your income is shielded from taxes.

🗂️ 2. Tax Classes (Lohnsteuerklassen)

In Germany, your tax class (Steuerklasse) determines how much tax is withheld from your monthly salary.

Class	Description
I	Single, separated, or divorced
II	Single parent
III	Married, higher-earning spouse
IV	Married, both partners earn similarly
V	Married, lower-earning spouse
VI	Second or multiple jobs

Tax class changes after marriage or having children can significantly reduce your monthly taxes.

📢 Tip: If you’re married, consider a tax class combination (III/V or IV/IV) that optimizes your overall tax burden.

📚 Income Tax Returns (Steuererklärung)

While employees are not always required to file a tax return, it’s highly recommended because:

You might get a refund!
Average refund in Germany: €1,000+ per year.
Refunds are common if you:
- Changed jobs.
- Were unemployed for part of the year.
- Had high work-related expenses (commuting, training, relocation).

Filing Deadlines (2025):

Voluntary filing: Up to 4 years later.
Mandatory filing (e.g., multiple income sources, freelance work):
Due by 31 July 2026 (for the 2025 tax year).

How to File:

ELSTER: Germany’s free online tax filing platform (ELSTER Portal).
Tax apps (for easy English-language help):
➡️ Taxfix, Wundertax, SteuerGo.
Hire a Steuerberater (Tax Consultant):
Costly (€300–€800) but helpful for complex cases (freelancers, expats with global income).

👩‍💻 Taxes for Freelancers and Self-Employed

Being your own boss? Great! But you carry extra tax responsibilities:

What You Must Do:

Register your freelance activity at the Gewerbeamt (Trade Office).
Apply for a tax number (Steuernummer) from your local Finanzamt.
Submit quarterly advance income tax payments if your expected tax burden is high.
Charge and report VAT (Mehrwertsteuer, 19% standard or 7% reduced) unless you qualify as a Kleinunternehmer (small business exemption).

📢 New for 2025:

Threshold for small business VAT exemption (Kleinunternehmerregelung) raised to €30,000/year turnover.

Freelance Tax Deadlines:

VAT returns: Quarterly (or monthly if turnover is high).
Income tax returns: Annually.

💡 Pro Tip: Keep all receipts for business expenses (laptops, software, office supplies, professional training) — they can significantly reduce your taxable income!

🆕 Changes in 2025 You Should Know

📈 Digitalization of Tax Systems (ELSTER 2.0)

A new, streamlined e-filing portal is live — better English support and mobile-friendly.
Automatic pre-filling of income data (for employees) using tax ID and employer records.

📈 Higher Deductibles

Home office lump sums, commuting allowances, and professional training costs have higher deductible limits.
Remote workers can now deduct up to €1,260 per year for working from home without needing a dedicated office room.

🚨 Common Tax Mistakes to Avoid

❌ Missing the Steuer-ID:
You must provide your Tax Identification Number (Steuer-ID) to your employer right after Anmeldung.
❌ Forgetting about Church Tax:
If you declare a religion at Anmeldung, 8%–9% Church Tax (Kirchensteuer) will be automatically deducted.
❌ Not saving expense receipts:
In Germany, you must have physical or digital proof to claim deductions.
❌ Filing late:
Late filings lead to late fees and potentially painful penalties.