Income Tax · Employees
German tax returns for employees
When employees in Germany are required to file an income tax return, when a voluntary filing may be worthwhile, and which employment expenses, special expenses, extraordinary expenses and cross-border matters may need to be considered.
German Income Tax Return
German wage tax is an advance payment of income tax
For employees in Germany, the employer generally withholds wage tax from salary during the year and remits it to the German tax authorities. This does not necessarily mean that the employee's final income tax position has been settled.
The annual income tax return combines the individual's actual taxable income and deductible expenses for the calendar year. The final calculation determines whether additional tax is due or whether the taxpayer is entitled to a refund.
A tax return becomes particularly relevant where the employee has additional income, experienced changes in employment during the year, or incurred material deductible employment or personal expenses.
Filing Requirement
Does an employee have to file a German tax return?
An income tax return may be mandatory or may be filed voluntarily. The answer depends on the individual's circumstances during the relevant calendar year.
Additional income
Income in addition to employment income may trigger a requirement to file a German income tax return.
Multiple employers
Receiving employment income from more than one employer at the same time can create a German filing requirement.
Income-replacement benefits
Certain tax-exempt benefits can affect the applicable German tax rate through the progression mechanism.
Married couples and tax classes
Certain German wage-tax class combinations or special payroll-tax circumstances can create a filing obligation.
Allowances used in payroll
Where a tax allowance was already taken into account during payroll withholding, a tax return may subsequently be required.
Cross-border matters
Foreign employment income, cross-border work arrangements or other international income can create additional German filing requirements.
Voluntary Tax Return
When a voluntary German tax return may be worthwhile
Even where there is no statutory filing requirement, an employee may choose to file a German income tax return if more wage tax was withheld during the year than the final income tax calculation ultimately requires.
This can occur, for example, where there are substantial employment-related expenses, a change of employer, fluctuating salary, business travel, professional training or larger deductible personal expenses.
Whether a voluntary return actually produces a refund depends on the individual's income and deductible expenses.
Employment Expenses
Claim employment-related expenses correctly
Employment expenses are costs incurred in connection with the employee's professional activity. Where the statutory requirements are met, they can reduce taxable employment income.
Commuting and business travel expenses
Travel to the employee's first place of work and business travel away from that location are subject to different German tax rules.
- Commuting allowance
- Business travel
- Travel costs for external assignments
- Meal allowances
- Accommodation costs
Home office and professional expenses
Expenses connected with professional activity outside the traditional workplace can also be relevant.
- Home office
- Dedicated home office
- Work equipment
- Professional training
- Professional literature
Other Employment Expenses
Typical deductible costs for employees
Professionally used computers, office equipment, specialist literature and other work tools may qualify as employment expenses.
Professionally motivated seminars, courses, examinations and continuing education may qualify as deductible employment expenses.
Where a second household is maintained for professional reasons, additional costs may be deductible if the statutory conditions are met.
Costs incurred in looking for new employment can qualify as professional expenses for German tax purposes.
Other Deductions
Special expenses, extraordinary expenses and household-related costs
Insurance and retirement contributions
Contributions to qualifying insurance and retirement arrangements may be deductible under the applicable German rules.
Charitable donations
Donations to qualifying organizations may be deductible as special expenses where the statutory requirements are met.
Childcare expenses
Certain childcare expenses may qualify for German tax relief within the statutory framework.
Medical expenses
Exceptional medical, care or similar costs may qualify as extraordinary expenses in certain circumstances.
Household services
Certain services performed in a private household can qualify for a direct German tax reduction.
Tradesperson services
The labor portion of qualifying work performed in a private household may benefit from tax relief.
Other Types of Income
Employees often have more than salary income
An employee tax return can become substantially more complex where the taxpayer also has additional income or assets.
Examples include rental income, foreign bank or brokerage accounts, interests in businesses, self-employed side activities, pensions and other retirement income.
These items should not be analyzed separately from employment income, because they can affect taxable income, the applicable tax rate and additional reporting obligations.
International Employees
Working in Germany with cross-border connections
International employee cases frequently require more than a standard German income tax return. Residence, workdays, employer location, country of employment, social security and the applicable tax treaty can all affect the tax result.
Employee moves to Germany during the year
The period before and after the move must be analyzed separately for German tax purposes.
- Start of German tax residence
- Salary before and after the move
- Foreign-source income
- Progression rules
- Tax treaty analysis
Employer and work location in different countries
International employment requires an analysis of which country has taxing rights over salary and which German filing obligations remain.
- Workdays by country
- Foreign employer
- Home office in Germany
- Treaty allocation of employment income
- Foreign tax credit or exemption
Germany–United States
Special issues for U.S. persons and U.S. employers
U.S. person employed in Germany
U.S. citizens and other U.S. persons can remain subject to U.S. tax filing and information-reporting obligations despite living and working in Germany.
Read articleCoordinate German and U.S. tax returns
Employment income, German income tax and U.S. foreign tax credits should be coordinated between the two tax returns.
Read articleU.S. employer with an employee in Germany
A foreign employer with an employee working in Germany can create German payroll, tax and social-security issues.
Read articleFrequently Asked Questions
Employees and German income tax returns
Does every employee in Germany have to file a tax return?
Can I file a German tax return even if I am not required to?
Which commuting and travel expenses can employees claim?
Can home-office expenses be claimed in Germany?
Do I have to report foreign salary in Germany?
What happens if I move to Germany during the year?
Can you prepare an employee tax return with international issues?
German Tax Advice
Have your German income tax return professionally prepared
Whether you have a straightforward German employment case or a return involving investments, real estate, foreign salary or cross-border issues, we review the relevant tax matters and prepare the German income tax return.