Taxes in Germany for IT Professionals

Germany remains one of the most attractive countries in Europe for IT specialists and companies developing digital products. The country hosts major technology hubs, Berlin, Munich, Hamburg, and Frankfurt  where startups, development centers, and international R&D offices are actively growing. However, entering the German market presents employers and professionals with one of the most challenging aspects: a high and multi-layered tax system.

For companies planning to hire IT personnel in Germany, it is important to understand that the level of tax burden here is significantly higher than in Eastern Europe, but it also provides a high level of social protection, stability, and infrastructure. The system is structured so that taxes and contributions are shared between the employer and the employee, forming the overall “cost” of the job, which can differ significantly from the nominal salary stated in the offer.

When hiring developers, designers, DevOps engineers, or project managers, a key question is how much the specialist will actually cost the company and what amount they will receive “net” after taxes and social contributions. In Germany, these figures depend on many factors: employment status, income level, tax class, place of residence, family situation, and even religious affiliation.

In this article, we will cover the main taxes for IT specialists and companies in Germany, explain how the income tax and social contributions system works, and demonstrate why it is important to consider tax specifics when forming an offer and choosing a form of collaboration, whether it is employment under a labor contract, self-employment, or an EOR model.

If you plan to open a development office in Germany, hire a remote team, or optimize personnel costs, understanding the tax system will help avoid mistakes and build a sustainable market entry strategy.

Tax Structure in Germany

The German tax system in 2025 maintains a social focus and remains one of the most stable and transparent in Europe. For IT companies and specialists, this means not only relatively high taxes but also guaranteed access to healthcare, pension schemes, and other social guarantees. Let us consider the main types of taxes in Germany.

Main Types of Taxes and Contributions

Income Tax (Einkommensteuer)

Income tax in Germany is calculated on a progressive scale — the higher the income, the higher the rate. For 2025, the thresholds are:

• Up to €11,604 per year — no tax is charged (tax-free allowance).
• From €11,605 to €66,760 — the rate gradually increases from 14% to 42%.
• From €66,761 to €277,825 — a fixed rate of 42%.
• Above €277,826 — a higher rate of 45% applies (“wealth tax”).

The employer automatically withholds this tax from the employee’s salary and remits it to the tax authorities. The withholding amount depends on the tax class (Steuerklasse), which is determined by marital status, number of children, and partner status. For example, employees with families often pay less tax due to deductions and income splitting between spouses.

Church Tax (Kirchensteuer)

Church tax is collected only from those officially belonging to a religious community. In 2025, the rate remains the same — 8% of income tax in most states and 9% in Bavaria and Baden-Württemberg. One can opt out of paying this tax by officially leaving the church.

Solidarity Surcharge (Solidaritätszuschlag)

Since 2021, the solidarity surcharge (5.5% of income tax) is retained only for high-income earners. In 2025, it applies to about 10% of the wealthiest taxpayers whose incomes exceed the set threshold (around €66,000 per year for singles and €132,000 for married couples). For most IT specialists, this surcharge is either minimal or does not apply at all.

Social Contributions (Sozialabgaben)

In addition to taxes, all workers and employers in Germany make mandatory social contributions covering healthcare, pensions, unemployment insurance, and long-term care. These contributions are automatically withheld from wages and split equally between employer and employee.

Approximate rates for 2025:

• Pension Insurance (Rentenversicherung) — 18.6% (9.3% each for employee and employer).
• Health Insurance (Krankenversicherung) — 14.6% basic rate + average additional contribution of 1.7%, split evenly.
• Unemployment Insurance (Arbeitslosenversicherung) — 2.6% (1.3% each).
• Long-term Care Insurance (Pflegeversicherung) — 3.4%, and for childless employees over 23 — 4.0%.

Overall social contributions in 2025 are about 39–41% of the payroll, with half paid by the employer.

Thus, in 2025, Germany maintains the traditional balance between tax burden and social protection:

• Employees pay relatively high taxes.
• Employers bear a significant portion of social obligations.
• In return, employees gain stability, healthcare, pension support, and social guarantees.

This should be taken into account when planning a budget for hiring IT specialists and forming a job offer, as the real “cost” of an employee for a company in Germany is significantly higher than the pre-tax salary.

Distribution of Tax Burden Between Employer and Employee

The taxation and social contribution system in Germany is based on shared responsibility. The employer and employee share most mandatory payments, but in absolute terms, the company bears the higher overall burden.

How mandatory contributions are split

Each employee in Germany receives a salary stated in the employment contract, the “gross salary.” From this amount, taxes and social contributions are automatically deducted and transferred to tax authorities and insurance funds.

Most social contributions — pension, healthcare, unemployment, and long-term care  are split evenly between employer and employee. For example, if the total pension insurance rate is 18.6%, 9.3% is withheld from the employee’s salary, and the other half is paid additionally by the employer.

Not all costs are split strictly 50/50. The employer also covers administrative costs, part of insurance premiums, and may pay additional corporate contributions (for example, for voluntary employee health insurance or industry funds).

What is included in “gross salary” and how “net salary” is formed

“Gross salary” is the amount before taxes and contributions. It includes the base rate, bonuses, allowances, and other regular payments. After all deductions, the “net salary” remains the amount the employee receives.

The path from “gross” to “net” in Germany is as follows:

1. Social contributions (pension, health, unemployment, long-term care) are deducted.
2. Income tax (Einkommensteuer) is withheld depending on income level and tax class.
3. Church tax and solidarity surcharge are added if applicable.

As a result, an employee receives about 55–65% of their gross salary, depending on region, family status, and income level.

Why the “cost” of a specialist is higher than their salary

For the employer, an employee costs more than their gross salary. In addition to the employer’s share of mandatory social contributions (about 20% of gross), the company incurs additional expenses:

• Accident insurance.
• Possible contributions to chambers of commerce and industry or sectoral associations.
• Administrative costs for payroll calculation and reporting.
• Benefits and bonuses stipulated in the employment contract.

Thus, the real cost of a specialist for the employer is usually 25–30% higher than the amount stated in the offer. For example, if an IT developer has a gross salary of €6,000, the company’s total expenses may reach around €7,500–7,800 per month.

This approach reflects the philosophy of the German labor market: high fiscal burden is compensated by stability, social protection, and transparent rules for business. For IT companies, this means careful calculation of total personnel costs when planning staff and forming a budget.

Income Tax in Germany

Progressive scale and tax classes (Steuerklassen)

The progressive tax scale is a key feature of the German system. The higher the income, the higher the percentage of deductions. This reflects the principle of “tax fairness” and allows redistribution to benefit less well-off citizens.

For 2025, the income tax thresholds are:

• Up to €11,604 per year — no tax (tax-free allowance).
• From €11,605 to €66,760 — progressive rate from 14% to 42%.
• From €66,761 to €277,825 — fixed rate of 42%.
• Above €277,826 — higher rate of 45% (“Reichensteuer” — wealth tax).

Thus, an IT specialist earning €70,000 per year does not pay 42% on the entire amount — the tax rate applies to income “steps,” lowering the effective average rate (usually 25–30%).

Tax Classes (Steuerklassen)

Tax classes are a tool for individualizing the tax burden. Each employee belongs to a category that determines how income tax is calculated and which deductions apply.

For 2025, there are six classes:

1. Class I — single, divorced, or widowed without children.
2. Class II — single parents (with benefits).
3. Class III — married employees if the spouse earns significantly less.
4. Class IV — married employees with roughly equal income.
5. Class V — second spouse if the first is in Class III.
6. Class VI — those with more than one job.

Choosing the tax class significantly affects withholding. For example, a developer earning €60,000 annually, married and in Class III, will pay less tax than a single colleague in Class I.

Real Examples

1. Middle-level developer, €4,000 gross per month, Steuerklasse I (single):

Income tax: about €500–600

Social contributions: about €800

Net salary: about €2,600–2,700

2. Senior developer, €6,000 gross per month, Steuerklasse III (married):

Income tax: about €650–750

Social contributions: about €1,200

Net salary: about €4,000–4,200

Thus, marital status and tax class can change the net monthly income by hundreds of euros even at the same salary level.

Additional Deductions

In addition to income tax and social contributions, there are two additional types of deductions in certain cases:

Church Tax (Kirchensteuer)

Paid only by members of recognized religious organizations (Catholic and Protestant churches). Rate: 8% of income tax (most states) or 9% (Bavaria and Baden-Württemberg). For example, if an employee pays €700 in income tax, church tax is about €56–63. One can avoid it by officially leaving the church (Kirchenaustritt).

Solidarity Surcharge (Solidaritätszuschlag)

From 2025, this surcharge (5.5% of income tax) applies only to high-income groups. Thresholds: about €66,000 for singles and €132,000 for married couples. For most IT specialists earning up to €6,000/month, it does not apply.

Local Taxation Features

Main tax rates are uniform across the country, but some contributions, like the additional contribution for health insurance (Zusatzbeitrag), are individually set and may vary slightly by region and chosen insurer (average 1.7%).

Overall, income tax in Germany is a complex but predictable system. With the right tax class and optimized insurance contributions, IT specialists can significantly increase their net income, and employers can more accurately calculate the total cost of hiring, especially in international contracts and EOR models.

Social Contributions in Germany

Germany’s social contribution system is the foundation of the country’s social model. It covers key areas of citizens’ lives: health, pensions, unemployment insurance, and long-term care. For IT companies and specialists, this represents not just mandatory expenses but participation in a system that ensures long-term stability and protection.

Types of Mandatory Social Contributions

Pension Insurance (Rentenversicherung)

This is the largest element of mandatory contributions. It ensures future pensions and is formed from monthly contributions from both employer and employee.

• Total rate in 2025: 18.6% of gross salary
• Split: 9.3% employer, 9.3% employee
• Funds go to the state pension system (Deutsche Rentenversicherung). Eligibility requires at least 5 years of contributions, and benefits depend on total contributions over a career.

Health Insurance (Krankenversicherung)

Mandatory for all workers in Germany, covering medical care, hospitalization, prevention, and medications.

• Base rate: 14.6% of income
• Additional contribution (Zusatzbeitrag) averages 1.7%, total ~16.3%
• Split equally between employee and employer (~8.15% each)
• Employees can choose public or private insurance (private available if income exceeds €69,300/year)

Unemployment Insurance (Arbeitslosenversicherung)

Provides payments if unemployed and support for reemployment.

• Rate: 2.6% of gross salary
• Split equally (1.3% each)
• Eligible employees receive unemployment benefits (Arbeitslosengeld I) — ~60% of previous net income (67% for employees with children)

Long-term Care Insurance (Pflegeversicherung)

Funds care for those unable to self-care.

• Total rate: 3.4%
• Split equally (1.7% each)
• For childless employees over 23, rate rises to 4.0%, extra 0.6% fully paid by employee

Who Pays and How Much

The system is based on solidarity and parity: most contributions are shared equally. For 2025:

• Employee pays ~20–21% of gross salary
• Employer pays ~20–21%
• Total ~40–42% of payroll

Example: for an IT developer with €6,000 gross:

• Taxes and contributions: ~€2,400–2,500
• Net income: ~€3,500–3,600
• Real cost for the company: ~€7,200–7,400/month

Taxation Features for IT Specialists

Taxes for Employment under a Labor Contract (Anstellung)

For most IT specialists in Germany, employment under a labor contract (Anstellung) is the most common method. This form provides stability, social guarantees, and automatic withholding of all mandatory taxes and contributions.

How Taxes and Contributions Are Withheld

In labor contracts, the employer acts as a tax agent. Monthly deductions from the employee’s salary include:

1. Income tax (Einkommensteuer), calculated based on tax class (Steuerklasse), marital status, and number of children
2. Social contributions (Sozialabgaben): pension, health, unemployment, long-term care
3. If applicable — church tax (Kirchensteuer) and solidarity surcharge (Solidaritätszuschlag)

All amounts are remitted directly to tax authorities and insurance funds. Employees do not need to file monthly declarations themselves, unless claiming deductions or recalculations for family circumstances.

The employer additionally pays their share of social contributions (~20–21% of salary) and ensures compliance with labor laws.

Employment under a labor contract is the safest and most convenient form for IT specialists in Germany, especially for those valuing stability, social protection, and automatic tax reporting. For employers, it reduces legal risks and ensures transparent payroll calculation.

Conclusion

Taxation for IT specialists in Germany combines high income tax and social contribution rates with an extensive social protection system. For employees, this means stability, healthcare, pensions, and unemployment benefits, while for employers, it requires careful calculation of the total cost of hiring. Different forms of employment  labor contract, self-employment, freelance have their own taxation features and effects on net salary, making proper planning essential.

Our team at EOR.by helps IT companies hire employees in any location. We handle payroll, taxes, and social contributions, as well as full support for labor and freelance contracts. This allows companies to focus on product and team development rather than administrative and tax issues, ensuring transparency and legality of all payments.