Germany: from gross to net, how to read your payslip

Gross and net

The gross salary is in the employment contract. The net salary is what you are paid out. In between are the deductions your employer passes on for you: social contributions to the social insurance and wage tax to the tax office. When paying, it must give you a payslip in text form, with the pay period, the make-up of the pay and the type and amount of deductions (§ 108 GewO); if nothing changes, the new statement can be skipped.

With an annual salary you divide by 12 to get the monthly gross; holiday and Christmas pay are taxed separately and are not included here.

The social contributions

There are four branches, and employee and employer share the contributions, with two special features for long-term care insurance:

• Pension insurance: 18.6%, of which you bear 9.3%, up to a salary of €8,450 a month.
• Unemployment insurance: 2.6%, of which your 1.3%, up to the same €8,450.
• Health insurance: 14.6% plus an additional contribution from your fund (on average 2.9%); you bear half, that is 7.3% plus half of the additional contribution, up to €5,812.50 a month.
• Long-term care insurance: 3.6%, of which your 1.8%, up to €5,812.50. Childless people pay 0.6 points more on their own from age 23, parents 0.25 points less per child from the second child (up to the fifth); in Saxony employees bear 2.3%.

Wage tax, tax class and the taxes around it

Wage tax is an advance payment on your income tax. Its amount depends on the salary and the tax class (§ 38b EStG): 1 for single people, 2 for single parents, 3 and 5 for married couples where one is in 3 and the other in 5, 4 for married couples who are both in 4, 6 for a second job. The employer retrieves the tax class and child allowances electronically (§ 39e EStG).

On top come the solidarity surcharge, which only applies at higher income, and church tax, if you belong to a church that levies it: 8% of the wage tax in Baden-Württemberg and Bavaria, 9% in the other states. For the solidarity surcharge and church tax, the child allowances count.

The example: €3,000 gross

Tax class 1, aged 35, no children, no church tax, additional contribution 2.9%: pension insurance €279.00, unemployment insurance €39.00, health insurance €262.50 (8.75%), long-term care insurance €72.00 (2.4%), together €652.50; plus €293.08 of wage tax. Net: €2,054.42, or 68.5% of the gross.

With church tax in North Rhine-Westphalia, €26.37 more is added (net €2,028.05). With two children, long-term care drops to €46.50, wage tax rises slightly to €300.08, and €2,072.92 remains.

What is left at a higher salary

In tax class 1, with no children and no church tax: of €2,000 gross, €1,476.84 remains, of €4,000 €2,605.50, of €5,000 €3,130.09, of €6,000 €3,641.58 and of €8,000 €4,679.96. The share falls with salary, because wage tax grows faster than gross pay and, above the contribution ceilings, social contributions stop growing.

Between €603.01 and €2,000 a month the transition range (Midijob) applies: employees pay reduced contributions that start near zero at €603.01; the pension is still calculated on the full salary.

Tax classes: what they change and what they do not

With a salary of €5,000 and two children, about €3,542 net remains in class 3, about €3,158 in class 4 and about €2,657 in class 5. The class shifts the monthly deduction between the partners, it does not change the annual tax: that is evened out in the tax return, and with class 5 (or 6) filing is mandatory (§ 46 EStG).

Social contributions do not change with the tax class at all: they depend only on salary.

Checking your payslip

1. Check gross, tax class, child allowances and denomination: wrong features cost money every month.
2. Recalculate the four social contributions: they are percentages of your gross, up to the contribution ceilings.
3. Keep the payslips and, at the end of the year, the wage tax certificate: you need them for the tax return.
4. If something is wrong, ask the HR department or payroll first.