Wage tax

The income-tax tariff under § 32a EStG

Wage tax (Lohnsteuer) is not a tax of its own with its own rates. It is the income tax your employer withholds in advance each month and pays to the tax office. Its amount follows the income-tax tariff of § 32a of the Income Tax Act (EStG) – and that tariff is the crucial difference from many other countries: it is not a step table of fixed class percentages, but a single continuous mathematical formula.

Up to the basic allowance (Grundfreibetrag) of 12.348 € a year, your taxable income (zu versteuerndes Einkommen, zvE) stays tax-free – this amount covers the subsistence minimum. Only the part above it is taxed, at a rate that rises not in jumps but continuously. That is exactly why the tariff is called “progressive”: each additional euro earned is taxed a little higher than the last, with no hard step edges.

The tariff falls into five zones. The first is the zero zone (the basic allowance). Two progression zones follow, in which the marginal rate – the rate on the next euro – climbs smoothly from a low entry rate up to 42 %. Then come two linear zones where the marginal rate is constant: the proportional zone at 42 % and the so-called top-earner zone (Reichensteuer) at 45 %.

One step comes before the tariff: in ongoing wage-tax withholding the employer reduces pay by the Vorsorgepauschale under § 39b(2) sentence 5 no. 3 EStG – a statutory approximation of pension and insurance contributions, which this calculator applies. The pension component (letter a) is not capped; the remaining components (letters b to e) are capped together at 1.900 € a year.

A formula, not a class table

This is the point most calculators leave out: in the two progression zones the tax is not read from a table, it is computed from a quadratic polynomial. The statute gives a formula for each zone of the form “(a · y + b) · y”, into which the taxable income (as y, the distance above that zone’s starting point) is substituted. The result is the whole annual tax figure for that zone, which is then rounded down to the next full euro.

Because it is a formula and not a bracket table, there are effectively infinitely many “steps” within a zone – the rate shifts with every euro. The two upper zones, by contrast, are linear: there the marginal rate is fixed (42 % and 45 %), and the tax is a simple straight line. The tariff’s four lower turning points are shifted each year against “cold progression” (bracket creep); the top-earner turning point stays fixed.

Solidarity surcharge (Solidaritätszuschlag)

On top of the computed wage tax comes the solidarity surcharge (“Soli”). It is not a base of its own but a surcharge on the wage tax itself: 5,5 % of the wage tax. What matters, though, is the exemption threshold (Freigrenze) – and it means that the great majority of employees pay no Soli at all today.

As long as the (fictive) annual wage tax does not exceed the threshold of 20.350 € in tax class I/IV – or 40.700 € in class III – the Soli is zero. Only above it does the surcharge begin, and even then not immediately at the full 5,5 %: in the mitigation zone (Milderungszone) it is capped at 11,9 % of the amount by which the wage tax overshoots the threshold. So the Soli grows gently into its full rate instead of switching on abruptly at the edge.

In practice this means an average employee salary stays well below the threshold and is fully exempt from the Soli. It only becomes noticeable at markedly higher incomes.

Church tax (Kirchensteuer)

Church tax is paid only by members of a tax-levying religious community. Anyone who belongs to no such community, or has formally left it, does not pay it – so it is not a general levy but tied to membership.

Church tax, too, is charged not on income but on the wage tax, and the rate depends on the federal state. In Bavaria and Baden-Württemberg it is 8 % of the wage tax; in the other of the sixteen federal states it is 9 %. What governs is the state of the employer’s place of business, which in the normal case coincides with the employee’s residence.

Children: the fictive base under § 51a EStG

A detail that surprises many: for the solidarity surcharge and church tax the figure used is not the wage tax actually withheld, but a lower, “fictive” wage tax under § 51a EStG. It is computed as if the child allowances (Kinderfreibeträge) had already reduced the income – even though ongoing wage-tax withholding itself does not deduct the child allowances (there the child benefit, Kindergeld, applies instead).

The full child allowance under § 32(6) EStG is 9.756 € per child per year for both parents together; tax classes I and IV count half of it, class III the whole amount.

For parents this means: as soon as child allowances count, the base for Soli and church tax falls – so both surcharges come out lower than a glance at the raw wage tax would suggest. Without children, the fictive base is simply equal to the wage tax, and this detour drops away.

Tax class III and the splitting method

For married couples in tax class III the tariff is not applied directly to the taxable income but through the splitting method (§ 32a para. 5 EStG): the tax is computed under § 32a on half the income and then doubled. Because the formula is progressive, that yields a lower tax than applying it directly – the advantage that tax class III reflects.

The five tariff zones

Frequently asked questions