It’s a beautiful thing when your salary hits your account each month. But when you’re reading through your payslip, you may notice some hefty deductions—including taxes, social security contributions and more. So what do they mean, and where’s all that money going anyway?We get it—learning to interpret your payslip may not be exciting. But wrapping your head around these deductions is an important part of understanding your income, as well as what benefits you might be entitled to later on. Don’t worry, we promise to keep it short and simple. Let’s go!
What’s a payslip?
A payslip—or Lohnabrechnung in German—is the piece of paper that shows you how your wages or salary is structured. You can see what deductions are taken from your gross salary (a.k.a. your before-tax income) and what your net salary will be (a.k.a. your take-home earnings). Your employer is legally obliged to issue payslips to you, and they have to keep them for a total of six years—meaning you can still request missing payslips from previous employers.When reviewing your payslip, it’s important to bear in mind the difference between a salary and hourly pay. Are you paid based on the number of hours you’ve worked? This means that you’re earning an hourly wage—so the amount on your payslip will depend on how many hours you worked that month. When you receive a salary, you’re paid a fixed amount for your job. This means you’ll be paid the same amount every month into your salary account. Although you’re likely aware of whether you’re an hourly or salaried employee, this information will also appear on the first page of your payslip. To make things simpler here, we’ll use the term “salary” to talk about any wages earned.
Banking basics
Banking jargon can be confusing—but it doesn't have to be. Find simple explanations to popular banking terms.
Learn the basics
How is my payslip structured?
At first, a payslip can seem rather complicated. This is largely due to the fact that many legal obligations need to be met in one document. Let’s go through them step-by-step.Your payslip needs to include information that identifies you and your employer, as well as more general information on your salary, tax contributions, and so on. This information can help you understand where your money is actually going in detail.Generally speaking, your payslip is divided into three different sections. The first section includes important information such as the name and address of you and your employer, a reference number and issuing date, your tax ID and social security number, as well as your job title.The middle section is a bit more complex. Here you can find details on:
- Your gross income (Bruttogehalt)
- Non-cash benefits, such as gym memberships (Sachbezüge)
- Financial benefits (Geldwerte Vorteile)
- Capital-forming benefits that your employer creates for you (Vermögenswirksame Leistungen)
- Contributions to company pension schemes (Altersvorsorge)
- Tax allowances (Steuerfreibeträge)
- Your income tax (Lohnsteuer)
- Your church tax deduction (Kirchensteuer), if applicable
- The solidarity surcharge (Solidaritätszuschlag), if applicable
- Your social security contributions (Sozialversicherungsbeiträge)
- Personal deductions (Persönliche Abzüge)
- Expense allowances (Aufwandsentschädigungen)
- Amount paid out, also known as your net income (Auszahlungsbetrag)
In the last section you can find your bank account information, the total net salary paid by the employer, and your statement of earnings.
So, where does all this money go?
As you can see, there are quite a few deductions that reduce your gross income. Your income tax (Lohnsteuer), the solidarity surcharge (Solidaritätszuschlag), and the church tax (Kirchensteuer) go directly to the tax office, whereas your social security contributions —including health insurance, pension contributions, nursing care, and unemployment insurance—will be forwarded to the relevant social insurance institutions. Although the amount of taxes you pay may seem high at first, keep in mind that sooner or later, you’ll be quite thankful for your pension and/or unemployment insurance.
How are my deductions calculated?
In simple terms, your taxes and contributions are calculated as a percentage of your total gross salary (Bruttogehalt). Your income tax rate (normally between 15% and 45%) is determined by your tax bracket in Germany—more on that later.Your income tax amount then defines how high your church tax and solidarity surcharges will be. The solidarity surcharge (Solidaritätszuschlag) is 3.5% of your income tax amount. But since 2021, most German residents are exempt from paying this contribution. Are you registered as a member of a state-recognized religious organization? Then you’ll pay another 9% of your income tax amount—or 8% in Bavaria and Baden-Wuerttemberg—as your church tax (Kirchensteuer, or KiSt on your payslip).For your social security and pension contributions (Sozialversicherung, or SV on your payslip), a fixed percentage is deducted from your gross salary. As of 2021, 14.6% of your gross salary is deducted for statutory health insurance contributions (Krankenversicherung, or KV-Beitrag on your payslip), and 18.6% is deducted for public pension contributions (Retenversicherung, or RV-Beitrag on your payslip).There’s also a 2.5% deduction for unemployment insurance (Arbeitslosenversicherung, or AV-Beitrag on your payslip) and a 3.05% deduction for long-term care insurance (Pflegeversicherung, or PV-Beitrag on your payslip). But it’s not all bad—with a few exceptions, 50% of your social security contributions are covered by the employer, and 50% by you, the employee.
What are the different income tax classes?
As you might have already caught on, your income tax class plays a big role in how much net income you’ll end up taking home. In Germany, we have six different income tax classes:
- Income tax class 1: Single person (single, unmarried, widowed, divorced)
- Income tax class 2: Single person with at least one minor child
- Income tax class 3: Married, widowed, or common-law partnerships (only possible in combination with tax class 5)
- Income tax class 4: Married or common-law couples, who both chose tax class 4 (this tax class is ideal for partners earning roughly the same amount)
- Income tax class 5: Married or common-law partnerships, where the other partner files in tax class 3 (the partner who earns less should file in tax class 5)
- Income tax class 6: Person (single, married, common-law partnership) with two or more jobs (the second job always falls into this category)
Should I keep my payslip?
Absolutely! Whether you store it online or in your file cabinet, you should always keep a copy of your payslip in Germany. Those documents are essential proof of the number of years you’ve worked and the social security contributions you’ve paid—which is especially important when it comes to your retirement. As mentioned above, your employer is required to keep your payslips for six years. So even if you’ve misplaced a few, you can still ask former employers for a copy. It’s worth noting that it’s your responsibility to actively request your payslip if you don’t receive it. In addition to keeping it for your records, you’ll need it each year to file your tax declaration—and hopefully some tax refunds.
The bank you'll love
✓ 100% mobile ✓ No hidden fees ✓ No paperwork ✓ Free virtual Mastercard ✓ Free ATM withdrawals
Get started
Organize your finances with N26
With N26, there’s no paperwork, no hidden fees, and no hassle. As a 100% mobile bank, you can conveniently manage your money on the go, no matter where you are. Whether you’re looking for powerful savings tools or easy ways to organize your money, discover the N26 account that fits best. Open your account now in minutes!
Relevant Links
| Banking licence |
| Digital wallet |
| Debit vs credit cards |
| Virtual card |
| Contactless cards |
| Maestro card |
| Withdraw money |
| Top up |
| Online payments |
| Foreign transaction fee |
| Foreign currency exchange |
| Cashback |
| IBAN Number |
| SWIFT and BIC codes |
| Bank statement |
