German Income Tax Guide

German Income Tax Guide German Income Tax Guide

German Income Tax Guide (2025)

Germany adjusted several income tax parameters for 2025, including the basic personal allowance, bracket thresholds and family benefits. This page distills what changed and how it affects residents and nonresidents. You’ll also find deep-dive guides tailored to U.S. citizens living in the U.S. with German-source income and to U.S. citizens residing in Germany.

1) 2025 Snapshot: Key updates

Basic allowance (Grundfreibetrag)

  • 2025 basic personal allowance: €12,096 (singles); €24,192 (married filing jointly).

Rates & brackets

  • Progressive scale with top rate 42% starting around €68,481; surcharge top rate 45% above about €277,826 (thresholds double for joint filers).

Capital income (Abgeltungsteuer)

  • Flat withholding on most investment income: 25% + solidarity surcharge (and church tax if applicable).
  • Saver’s allowance (Sparer-Pauschbetrag): €1,000 (single) / €2,000 (married) for interest, dividends, certain gains.

Solidarity surcharge & church tax

  • Solidaritätszuschlag: fully abolished for most wage/income taxpayers; still levied on capital income tax (5.5% of the capital income tax) and on high incomes.
  • Church tax: typically 8% (Bavaria, Baden-Württemberg) or 9% (other states) of the calculated income/capital tax if you are registered with a church.

Families & children (Kindergeld)

  • Monthly child benefit: €255 per child in 2025.

Filing deadlines (TY 2024 & TY 2025)

  • Tax year 2024 return due: 31 July 2025 (standard). With advisor: generally to 30 April 2026 (state variations may apply).
  • Tax year 2025 return due: 31 July 2026 (standard). With advisor: generally to 28 Feb / 1 Mar 2027 (since 28 Feb 2027 is a Sunday).

2) Residency vs. limited tax liability

Who is a German tax resident?

You are resident if you have a home (Wohnsitz) available for use or a habitual abode (gewöhnlicher Aufenthalt) in Germany. Residents are taxed on worldwide income under German law.

Who is a nonresident (limited liability)?

Nonresidents are taxed only on specified German-source income (e.g., German property rents, German-performed employment, certain German-payor capital income).

Optional resident treatment (§1(3) EStG)

In some cases, nonresidents may elect to be treated like residents (to claim full allowances/deductions) if most of their worldwide income is taxable in Germany or their non-German income is below the basic allowance; professional advice is recommended.

3) Income categories & how they’re taxed

Employment

German-source wages are subject to payroll withholding (Lohnsteuer) and annual assessment. Cross-border days and employer structure can shift taxing rights under the Germany–U.S. treaty.

Self-employment / trade

Profits are taxed at personal rates; business activities may also trigger municipal trade tax (Gewerbesteuer) depending on facts and location.

Investment income

Most interest/dividends/gains on shares are subject to the 25% final withholding (plus surcharges), with the saver’s allowance reducing taxable base if allocated to the paying institution.

Rental real estate

German property rents are taxable in Germany (nonresidents must file). Deductible items include maintenance, mortgage interest and building depreciation.

Pensions

Taxation of pensions depends on type (German statutory, occupational, U.S. Social Security/private plans) and treaty rules; treatment can differ between Germany and the U.S.

4) Coordination with U.S. tax

Treaty basics

The Germany–U.S. Double Taxation Agreement assigns taxing rights by income type (e.g., real estate, employment, dividends) and provides mechanisms to avoid double taxation.

U.S. foreign tax credit

U.S. citizens generally claim a foreign tax credit on Form 1116 for German taxes paid on the same income; limitations and basket rules apply.

Dividend relief at source / refund

German dividend withholding can be reduced under treaty (often 15%/5%). If over-withheld, apply to the German Federal Central Tax Office (BZSt) for a refund: Capital Income Tax Relief.

5) Deep-dive guides for U.S. citizens

Guide for U.S. citizens residing in the U.S.

German-source income only (limited liability), treaty interaction, and reclaiming excess dividend withholding. Open this guide

Guide for U.S. citizens residing in Germany

Worldwide taxation in Germany, treaty “savings clause”, foreign tax credit vs. FEIE, and common filing pitfalls. Open this guide

6) Practical checklist

What to gather

  • Annual wage statements, investment tax certificates, rental ledgers, pension statements.
  • Proof of residency status, travel day logs (for cross-border work), and brokerage WHT vouchers.

Plan ahead

  • Allocate your saver’s allowance to banks/brokers; review estimated prepayments; confirm treaty rate application on dividends.
Tip: If you have both U.S. and German reporting, align timelines early (U.S. extensions, German due dates, information statements like FBAR/FATCA where applicable).