- Updated:
- 05.10.2026
The tax return (Steuererklärung) in Germany seems like a complex task, especially if you are self-employed or have several sources of income. However, knowing the basic principles, you can easily put together your annual tax return yourself, get back some of the tax paid, and perhaps even turn filling out the return into an engaging activity.
In this article and the accompanying videos, we will examine how income tax (Einkommensteuer) works in Germany, how to calculate the tax yourself using Microsoft Excel, and how to submit your tax return via the Elster service. You will also find a free tax calculation template here.
Contents
Preparatory steps
Before rushing into the figures, watch this short video (8 mins), which covers the following questions:
- Is it compulsory to submit a tax return?
- Is it worthwhile to submit a tax return?
- What types of third-party assistance exist — tax advisor (Steuerberater), tax assistance association (Lohnsteuerhilfeverein), tax software (Steuersoftware)
- What is Elster and how do I access it
How income tax is calculated in Germany
Below are the main facts from the video. The video provides more explanations and examines examples based on the fictional Mustermann family. At the end of the article, you will find a link to a Microsoft Excel template containing all the data, formulas and calculations.
Income tax is levied, obviously, on income. All types of your income are taken into account, for example:
- salary
- income from business activities
- rental income
- investment income.
However, first of all, expenses directly related to the generation of that income are deducted from each type of income. For example, expenses related to property rental, such as depreciation, repairs, management fees, and so on, are deducted from rental income, so that as a result only the profit from this activity is taken into account. In the case of entrepreneurship, business expenses are deducted, so that only the profit from this activity is taken into account for income tax.
Note that tax is always calculated for the calendar year, so all income for that year is taken into account.
Now, the permitted deductions (Abzüge) are subtracted from the resulting total income (Gesamteinkommen). We will discuss these in the next section. What remains is the taxable income (zu versteuerndes Einkommen).
It is to this exact amount that tax formulas (or tables) are applied and income tax is calculated.
Since almost all of us make advance payments towards income tax (for example, wage tax — Lohnsteuer), the tax assessed for the year is now compared with the tax paid. If the amount assessed is more than the amount paid, you will have to pay the difference. If it is the other way round, the tax office (Finanzamt) will refund the over-withheld amount. This is the so-called Lohnsteuerjahresausgleich (annual wage tax adjustment).
This is the main motivator for preparing a tax return, and not just anyhow, but with a real understanding of the substance. The hours you put into your return can yield the best return on investment.
Tax reliefs
Tax deductions (Abzugsbeträge und Freibeträge) are the main tool for reducing the taxable base, and therefore the tax itself. There are very many of them, and we will discuss them in subsequent articles. But the main ones are:
A separate category is Vorsorgeaufwendungen, insurance contributions. Contributions to basic health insurance and long-term care insurance are deductible in full, whereas occupational disability insurance falls under the limit for other Vorsorgeaufwendungen, which for most people is already used up by their health insurance.
Tax-free allowance (Grundfreibetrag) — €12,348 in 2026 (in 2025 it was €12,096)
- Professional expenses (Werbungskosten), for example:
- the commute to work
- workwear
- work equipment
- home office expenses
- professional training and literature
You can automatically deduct the standard €1,230 without any further explanation. If the expenses are higher, it is worth detailing them separately, provided you have supporting documents.
- Insurance contributions:
- pension insurance (Rentenversicherung)
- health insurance (Krankenversicherung)
- long-term care insurance (Pflegeversicherung)
- Childcare costs (Kinderbetreuung):
- nursery fees, after-school club, nanny
- Kinderfreibetrag – tax allowance for children, if this is more advantageous than receiving Kindergeld (child benefit)
- Single parents receive an additional allowance (€4,260 in 2025 and 2026, plus €240 for each additional child)
- Helping relatives:
- financial assistance to relatives under certain conditions
- Exceptional expenses (außergewöhnliche Belastungen):
- unplanned medical expenses not covered by insurance
- funeral costs, natural disasters, etc.
- Expenditure on tradespeople and household services:
- 20% of the labour costs (not materials!) of tradespeople may be deducted directly from the tax already charged
Tax amount
The Income Tax Act (Einkommensteuergesetz) contains a mathematical formula (!) for calculating the tax based on the taxable income defined above. We have implemented this formula in the attached Excel template. You simply need to enter the amount of income into the cell, and the tax is calculated automatically.
Germany operates a progressive tax scale: the higher the income, the higher the tax, and the higher the tax rate. However, this scale is not uniform. No tax is levied at all on income up to €12,096. A specific tax rate is applied to each subsequent euro, ranging from 14% to 45%. This rate is known as the Grenzsteuersatz — the tax rate applied to the final euro of income. The increase in this rate is uneven across different income brackets. The following table (as of 2025) provides a general overview:
| Income received (2025) |
Tax rate (2025)
|
| up to €12,096 | 0% |
| up to €17,443 | 14 — 24% |
| up to €68,480 | 24 — 42% |
| up to €277,825 | 42% (Spitzensteuersatz) |
| from €277,826 | 45% (Reichensteuer, top income tax rate) |
Example: A minimum wage of €12.82 per hour (2025) gives, on a full-time basis, €2,141 per month or €25,691 per year. The tax on this amount is €3,112 (of course, excluding deductions). With a monthly salary of €4,000, the tax will be €9,988, and with a salary of €6,000 — €19,328.
Taxation of families
Married couples can file tax returns separately (each for themselves) or jointly. In the latter case, all the income of both is combined and a single tax is calculated for the family. Spouses who file a joint return receive an additional tax advantage called spouse splitting (Ehegattensplitting).
In this case, the tax is calculated according to the rules described above, but with half the family income, and is then doubled. If the tax were a linear function, such a manipulation would change nothing. But since the tax is progressive, dividing by 2 in most cases leads to the application of lower percentages. The greatest effect of spouse splitting is seen when the incomes of the spouses differ greatly.
Example: income tax on €48,000 at the standard rate in 2025 is €9,988, whereas with married couple splitting it is €5,324.
A realistic example - the Mustermann family
In the video you will meet the Mustermann family, who have one breadwinner earning a salary of €4,000 per month and two children. We made a number of assumptions about their life situation and potential deductions, and calculated a tax refund of €3,000–€4,000. Download the template at the end of the article to see all the figures in detail.
Tax return
Once you have gathered all your income and deduction data and filled in the Excel spreadsheet, you can submit your tax return to the tax office (Finanzamt).
To do this, use the Elster service (ELektronische SteuERklärung) — https://www.elster.de/eportal/start.
If you have dedicated tax software, it will most likely be able to send the data directly to the tax office. If you use the services of a tax consultant, he or she can submit the return on your behalf.
Elster carries out initial checks on the entered data for completeness and correctness. Read error messages carefully and correct them.
Before submitting your tax return, you can get a preliminary tax calculation from Elster. It is automatic and therefore provisional, but it will give you good feedback. You can compare your preliminary calculations in Excel with what Elster shows and figure out any discrepancies. Save the preliminary calculation for subsequent analysis.
After submitting your tax return, a few weeks later (depending on the tax office’s workload), you will receive your tax assessment (Steuerbescheid) electronically.
Tax refund
If you are due a tax refund, you will receive a bank transfer to your specified account (this usually happens almost immediately upon receiving the tax assessment).
Be sure to compare the figures obtained with your own calculation. If you disagree with anything, you may lodge an objection to the assessment in the prescribed manner (details are set out in the assessment itself).
Keep the tax assessment in a safe place (we would recommend both electronically and in hard copy). It might unexpectedly come in handy many years later.
Filing deadlines for the tax return
If you fall into the category of persons required to submit a tax return, you must do so by 31 July next year. If using outside help (tax consultant, Lohnsteuerhilfeverein), the deadline is a few months longer.
If you are not obliged to submit a tax return, but are doing so voluntarily, you have a whole 4 years to do it.
There are many reasons why a person is required to submit a tax return, but the most common one is the use of the 3rd (preferential) tax class.
In most cases it makes sense to file a tax return, even if you are not obliged to. And I would recommend not delaying the process anyway, so as not to create unnecessary problems for yourself and to get your refund quicker (otherwise you are giving the government an interest-free loan).
Advance payments - Lohnsteuer
Although the tax return is filed retrospectively for a year that has already passed, the government does not wait until the return is received to withhold tax. Instead, the government collects advance income tax payments, known as wage tax (Lohnsteuer), which the employer withholds and pays to the tax office.
The name is misleading, as these payments are not an independent tax, but rather an advance payment towards income tax. If you submit a tax return, the tax is recalculated and compared with the previously withheld advance payments. Any excess tax is refunded, and any shortfall must be paid.
If you are not required to submit a tax return and do not do so, then the withheld payroll tax simply becomes your income tax.
Wage tax is calculated using rules similar to those for income tax, with the difference that the exact amount of income and the full extent of deductions are not known, so various estimates have to be made to calculate the amount.
Tax classes
Factors such as spouse splitting, child allowances and allowances for single parents are taken into account in advance through tax classes:
- 1 or 2 for single people
- 3, 4 or 5 for families
- 6 for secondary employment.
Tax classes 1 and 4 are the basic ones. The 2nd takes into account allowances for single parents. The 3rd and 5th are for spouse splitting. If one of the spouses earns significantly more than the other, it makes sense for them to take the 3rd class, and the other spouse is then obliged to take the 5th.
The tax class significantly affects the amount of wage tax deducted from your salary. However, it has no effect on the final amount of income tax calculated when you submit your tax return. It makes sense to choose a more suitable tax class to avoid large payments at the end of the year or, conversely, to prevent the state from using your money for free for a long time.
In some cases, payroll tax is even more important because it affects the net salary. The net salary affects, for example, the amount of benefits such as unemployment benefit (ALG1), parental allowance (Elterngeld) or short-time work allowance (Kurzarbeitergeld). If you know that you are going to receive one of these, check your tax class in advance. The amount of benefits granted is not reassessed after the tax return has been processed.
What has changed in the tax rules in 2025 and the thresholds for the 2024 tax return
Archive: this is how it worked for the 2024 tax return. The figures for the 2025 tax return are in the table and examples above.
Every year there are small (and sometimes large) changes in taxation.
In this video we have put together the main changes for the 2024 tax year (tax return due by 31 July 2025) for you, and where the data is known, for 2025 as well.
The main changes relate to:
- deadlines for submitting the tax return
- tax thresholds
- minimum hourly wage
- medical and pension insurance contributions
- amounts of child tax deductions
- amounts of deductions for relocation expenses
- maximum amounts of financial assistance to relatives
Resources
- Template — https://go.grine.net/steuer-template — a free Microsoft Excel template for calculating tax (download, extract from the archive, open in Excel, enable macros). If you have any trouble downloading, write your email to me and I will send you the file.
- Elster — https://www.elster.de/eportal/start — official tax office tool
- Salary (deductions) calculator — https://nettolohn.de
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