Income tax is levied on the income of natural persons. Income tax is generally levied on certain income by means of tax deductions (e.g. wage tax and capital gains tax).

Income tax is levied on income

1. from agriculture and forestry,
2. from commercial operations
3. from self-employment,
4. from employment,
5. from capital assets
6. from letting and leasing and
7. the other income specified in § 22 EStG (e.g. income from a pension from the statutory pension insurance scheme or from a private capital-funded pension insurance or income from private sales transactions).

Income from agriculture and forestry, commercial operations and self-employment is profit. The profit is to be determined by comparing business assets or as the excess of operating income over operating expenses or, in the case of smaller agricultural businesses, according to average rates. In the case of other types of income, all expenses incurred to acquire, secure and maintain the income (income-related expenses) must be deducted from the income from the respective type of income in order to determine the income. Expenses for living expenses (e.g. expenses for food, clothing or housing) may not be deducted as business expenses or income-related expenses.

To determine the total income, positive and negative income can generally be offset within one type of income and also between the individual types of income without restriction.

The following amounts are deducted from this total income if the legal requirements are met:

• Age relief amount in accordance with § 24a EStG for taxpayers over 64 years of age
• Relief amount for single parents according to § 24b EStG
• Allowance for farmers and foresters in accordance with Section 13 (3) EStG

After deducting these amounts, the so-called total amount of income remains.

To determine the income, the following amounts may be deducted under certain conditions:

• Loss deduction in accordance with Section 10d EStG (loss carryforward, loss carryback)
• Special expenses in accordance with Sections 10, 10a, 10b, 10c EStG (e.g. pension expenses, church tax, childcare costs, expenses for own vocational training, school fees, maintenance payments to a divorced or permanently separated spouse/partner, donations)
• Extraordinary expenses in accordance with §§ 33, 33a, 33b EStG (e.g. medical expenses, maintenance expenses and expenses for vocational training, lump sums for disabled persons, surviving dependants and carers)

The maximum amounts deductible as special expenses for pension expenses (e.g. statutory pension insurance contributions, contributions to your own pension scheme) are as follows

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

The maximum amount is doubled for jointly assessed spouses/partners. 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 long-term care insurance and contributions to other pension insurance (e.g. liability insurance, unemployment insurance, contributions for "comfort benefits" in health insurance) are recognised as special expenses up to the following maximum annual amounts:

• for entrepreneurs or self-employed persons: up to EUR 2,800
• for employees and civil servants: up to EUR 1,900

The basic contributions to health and long-term care insurance are fully deductible even if the maximum amounts are exceeded. In this case, however, there is no deduction for other pension insurance.

If you do not provide evidence of higher special expenses, a lump sum of EUR 36.00 will be deducted for single persons and EUR 72.00 for married couples or civil partners (lump sum for special expenses).

The final step in determining taxable income is to deduct any allowances for children in accordance with §§ 31, 32 EStG from the income. The child allowance in 2024 is EUR 6,384 (2025: EUR 6,672) and the allowance for care and education or training needs is EUR 2,928. As part of the equalisation of family benefits, it is checked whether the child benefit or the allowances for children have a more favourable effect for you in your income tax assessment. If the deduction of tax-free allowances for children is more favourable for tax purposes, these are deducted from your income and the child benefit already received is offset.

In the case of a couple with unlimited income tax liability who do not live together, the person in whose care the child is receives the child benefit first. In principle, each parent receives half of the child allowance and, if applicable, the allowance for care and education or training needs. Half of the child benefit is then offset in each case. It is possible to transfer the tax-free allowance for children to one parent under certain conditions.

The taxable income calculated in this way forms the basis of assessment for the standard rate of income tax. The income tax to be assessed is the standard income tax, reduced by the domestic and, if applicable, foreign taxes to be offset and possibly other tax reductions (e.g. for expenses for household-related employment/services), increased by certain amounts.

The income tax prepayments made for this year and the wage tax and, if applicable, capital gains tax are offset against the income tax assessed. If the settlement results in a surplus in your favour, you must pay this amount as a final payment. If there is a surplus in your favour, this amount will be refunded to you.

The income tax rate determines the income tax you have to pay.

It is structured as follows in 2024:

• Tax exemption up to the basic tax-free allowance of EUR 11,784 for single persons / EUR 23,568 for married couples or civil partners
• Tax rate of 14% from a taxable income of EUR 11,785 / EUR 23,569 (initial tax rate)
• Tax rate of up to 45% from a taxable income of EUR 277,826 / EUR 555,652 (top tax rate)

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