Taxes & Social Insurances

Social Security & Taxes

Ever since Otto von Bismarck created the world's first comprehensive pensions and employment insurance schemes in the 1880s, Germans have looked to the state to provide social security. Nowadays, protecting whoever may need it more is an accepted part of the German life.

Moreover, in Germany most employees pay into the German tax system. Employees pay an income tax and other taxes at source, as well as a number of social security contributions and health insurance. 

This article will look at the most important parts of the German social security system, including costs and benefits, as well taxes.

The German Social Security System

All the aspects about the topic

Social security is a core aspect of the German social system. When the constitution was created, it included a set of measures known as the Sozialgesetzbuch (social code).

These clauses set out the rights that Germans enjoy regarding statutory pensions, statutory accidents, long term care, and statutory unemployment. Employers will also need to make health insurance contributions. 

Does Germany have social security?

The Sozialgesetzbuch isn't just a document. It's an important part of what being German means. Germans feel that vulnerable people in society should never be left behind, and the Sozialgesetzbuch exists to make sure that this doesn't happen.

The system provides a series of cash benefits to recipients when they are required. These benefits are funded by contributions from employers and employees, so that those with the most resources provide support for the less fortunate.

Can I claim benefits in Germany?

Social security isn't just provided for native Germans. In Germany, anyone who pays into the social security system can claim benefits if they are unemployed, sick, or suffer an accident.

Can you get benefits in Germany?

The German welfare system is progressive and fair. It means those who are out of work, retired or unable to work are entitled to benefits towards living costs, provided they have paid into the system. 

How does Social Security work in Germany?

Social Security contributions are taken from the employee's salary, with a contribution from the employer as well. The contribution is calculated as a percentage of the wage, which means higher earners pay more

How much is the pension in Germany?

The state pension in Germany is variable and will depend on the average wage earned during the time you have been paying social security payments. It is generally paid at about 50% of the wage. 

When am I eligible for social security?

Each type of social security payment has different eligibility, but in all cases, you will have to make social security contributions for a minimum time period. Non-EU/EEA nationals will need to have settled status or a temporary residence permit. 

How much is social security tax in Germany?

The full amount for all contributions, including healthcare, is around 20%. Those working in the country for a short time may be eligible for a German social security refund. 

German social security rates 2019/2020 for an employee:

  • Pension: 9.3%
  • Unemployment: 1.25%
  • Healthcare: 7.3%
  • Long term care: 1.525%

The German social security employer contribution is the same amount again.

Am I part of the system?

Generally speaking, anyone earning over €450 per month is part of the system and can claim.

Types of social security

More details about the assistance provided

The social security service in Germany is relatively complex, with various different forms of benefit and assistance.

Anyone could require help from these funds at some stage in their lives, and some are mandatory. So it makes sense for foreign residents to learn the different forms of provision.

What is the social security program in Germany?

  • Krankenversicherung: Germany's health insurance system. Every resident must be enrolled in some form of health insurance fund, which covers a portion of their medical bills (or everything in some cases). For most people, the contribution is 14.6% of income, shared 50:50 between employers and employees. If you need more information, check out our Health Insurance pages, which explain how it works in much more detail.
  • Pflegeversicherung: A separate system applies to long-term nursing care for the sick or elderly. This is funded by a 2.35% levy on incomes, again split equally between bosses and workers.
  • Arbeitslosenversicherung: Provided for limited periods of time when workers are without employment, unemployment insurance is funded by a 3% contribution from incomes.
  • Rentenversicherung: Levied to fund old age pensions for all Germans, the Rentenversicherung demands an 18.7% portion of worker incomes, also divided between bosses and workers.
  • Berufsgenossenschaft: The accident insurance system is funded wholly by employers, who pay a 1.2% share of employee wages to fund care for any workplace accidents.

How do I apply for Social Security in Germany?

These benefits are automatically provided for most standard employees, but freelance workers will need to organize their funding independently. Those earning under €450 per month won't need to contribute to social security funds, but must pay for health insurance.

Contact specific bodies

Generally, individuals will need to contact specific bodies to claim their benefits. For instance, unemployed Germans must contact a local "Bundesagentur für Arbeit" (unemployment agency), while health insurance claims must be made via insurance funds.

Employee Benefits in Germany

In Germany, the healthcare system blends public and private models to offer a fair and affordable service for all. For employed individuals, public health insurance contributions come out of the salary at source and payments are shared with the employer. Health insurance covers most basic healthcare but also covers long term sick benefits for up to 78 weeks. 

Those moving to Germany to study or to find a job will need to have public health insurance set up in advance, this is not only mandatory by law but a requirement for the German visa. It's essential to choose a good health insurance provider. For example, Expatrio offers you the possibility of being insured by TK (Techniker Krankenkasse), one of the largest public funds in Germany. 

Unemployment Benefits in Germany

Everyone who is employed full-time and earns more than €450 must make contributions to the Unemployment Insurance Fund. This involves paying 3% of income in most cases, which is shared between workers and their employers.

When individuals become unemployed, these contributions can pay dividends. In Germany, unemployed people can claim Arbeitslosengeld (unemployment benefits) for between 6 months and 2 years following their dismissal. There are some conditions. For example, recipients must have paid contributions for one year out of the past five, and – importantly – benefits are only paid to those who can prove they are seeking work.

Everything is organized via the Bundesagentur für Arbeit, which pays benefits, assesses eligibility, and provides funding for job-seekers. This can include funding for training, travel expenses, and general advice about how to find a new position. If approved, recipients will be paid 60% of their previous salary for half of the period they contributed to the fund (over the past 5 years). In practice, this involves a ceiling of around 3,000€.

After this point, a system called Arbeitslosengeld II kicks in. This will reduce benefit payments, but provide a small amount to fund further job-seeking.

How much is the unemployment benefit in Germany?

The amount you receive will be based on your past earnings. Unemployment Benefit I is available only to those who have been making contributions for a specific time. It is normally 60% of previous earnings (or 67% if you have children).

It's important to remember that Unemployment Benefit I is still subject to the tax and other contributions. Unemployment Benefit II is lower and is a basis subsistence benefit for those who are not eligible for Unemployment Benefit I. Unemployment Benefit II is a cash payment made at the job center and is circa €430 per month for a single adult. 

Maternity, Parental & Child Benefits in Germany

Germany seeks to protect the rights of new-born children via the social security system, and a range of Mutterschaftsgeld benefits are available to mothers, both before and after birth.

As a basic rule, mothers in Germany can claim their full salary for 12 weeks, if they have been paying into standard health insurance systems.

Otherwise, parents will receive 67% of their wages up to a maximum of 1,800€ per month. This can last for between 1 year and 14 months, and can be shared between mothers and fathers. While workers take the parental benefit, they cannot be fired or disciplined, and are free to return to work when the benefits elapse.

Parental benefits in Germany

Not all do so immediately. Parents have the right to take up to 3 years away from work to raise their children, or to demand part-time hours from their employers.

Most parental leave is unpaid. However, when giving birth, mothers can take 14 weeks of fully paid maternity leave (6 weeks before the due date, and 8 weeks afterward).

As children grow up, the state provides different forms of support. Standard child benefit works out at around 190€ per month for first and second children, 196€ for the third, and 221€ for every subsequent child.

Do you want to study in Germany and be with your children? Learn more about studying with a child

It's also handy to know that childcare is a legal right for children aged over 12 months. The state will provide assistance to ensure that support is provided.

German pensions

Caring for the elderly is a basic function of the German state. The nation takes this role very seriously, and various elements make up the pension system:

  • State pensions: Anyone who pays into the Gesetzliche Rentenversicherung (state pension) is eligible for basic pension payments. Payments start after the age of 65 for women and men.
  • Occupational pensions: These pensions are associated with specific employers, and are usually a voluntary contract option.
  • Private pensions: Many employees choose to arrange their own pensions alongside the state pension. Funds paid into these funds will be managed by banks and insurance companies.

How much is the pension in Germany?

Pension payments vary greatly in Germany. The state pension offers a basic payment to cover living costs, and is usually supplemented by other forms.

Payments will depend on how long recipients have paid into the pension system. To receive benefits, 5 years of payments are required (60 months), but this would generally result in extremely low monthly payments.

However, the average amount provided is relatively high by international standards, amounting to around €1,300 per month.

What is the retirement age in Germany now?

At the moment, the German pension age is 65 for both, men and women (although early retirement is a possibility for many).

Change of retirement age

It's important to note that the retirement age will soon be changing to 67. So anyone planning their retirement in the next 10 years should take that into account.

Accident insurance in Germany

One of the original parts of Bismarck's social security system in the 19th century, provision for injured workers is a core part of the relationship between employees and employers. Accident insurance is funded by employer contributions, so workers won't pay a penny.

All workers are enrolled onto bodies called Berufsgenossenschaft, which administer accident claims. These bodies are independent of employers, and run special courts which take decisions about whether to grant accident claims.

These claims can cover workplace incidents, but also stretch to illnesses contracted at work, as well as injuries sustained during commuting. So the scope is very wide.

Payouts vary depending on each case, and can be substantial. However, insurance will generally cover the cost of wages while workers recover.

Training and rehabilitation

During this period, the "Berufsgenossenschaft" will also help out with training and rehabilitation to get workers back in shape. So it's worth asking for assistance if you are worried.

Taxes in Germany

Find out more about taxes you'll need to pay in Germany

The German tax system is based on a progressive sliding scale, which means higher wage earners pay a greater percentage of their earnings. The main taxes in Germany include income tax as well as other related wage taxes (church, solidarity), and taxes on goods, such as VAT. 

Are taxes in Germany high?

Taxes in Germany are higher than in many other countries, but the money is put back into the national infrastructure. The VAT is at a globally standard rate of 19% (although some products and services are charged at 7%). Income tax starts relatively low, at 14%, but rises to 42% for top earners. 

For more information be sure to check our German Tax System page

Income Tax and other Taxes

All employees earning over €9,169 per year are subject to the income tax. All churchgoers pay a Church Tax of 8% or 9%, which is also taken at source. Employees will also need to pay the Solidarity Tax of 5.5%, which was set up to fund the cost of a unified Germany. 

How much tax do you pay in Germany?

You'll pay no income tax on earnings of below €9,169 per year (as of 2020). Above this amount, earnings are taxed at 14%. This rises on a sliding scale for each incremental wage bracket, topping out at 42% for those who earn over €55,961. You can use a tax calculator to find out exactly how much tax you would pay for any given salary in Germany. 

What is the tax rate in Germany 2020?

The income tax rate has been consistent for the last few years. It starts at 14%, rising to 42%. In Germany, the income tax brackets dictate which tax rate you pay. 

Do foreigners pay tax in Germany?

Yes, foreign workers will be taxed in Germany in the same way that German nationals are (either at source or via a tax return assessment for those who are self-employed).

Foreign workers who stay in Germany for a short time may be entitled to a tax return. Those who are seconded do not pay tax in Germany, as they will continue to be paid from their employer in their home country, where they will pay tax.