Last Update: 12 October 2024
1. Calculate Your Income: Freelance Tax Calculator for Germany
Germany’s tax system can be complex, particularly for self-employed and freelancing. Hence, you want transparency about the tax obligations you may have to pay on your business profit. This can help you to maximize your tax efficiency and put sufficient funds aside.
Settle in Germany’s Freelance Income Tax Calculator determines your tax rate as a full-time freelancer or self-employed person in Germany. Currently, it does not consider any deductions for married spouses or children.
Furthermore, this article explores the types of taxes to pay – such as income tax, church tax, and solidarity surcharge – and the various elements that impact the tax calculation for freelancers in Germany.
2. What Taxes do Freelancers and Self-Employed persons Pay in Germany
Income tax: Einkommensteuer
In Germany, freelancers and self-employed individuals are subject to paying income tax, known as “Einkommensteuer.” The amount of income tax is calculated based on Germany’s progressive tax system, where the tax rate increases with the amount of your income. As a result of different tax brackets and general allowances, the more you earn, the higher the percentage of tax you will need to pay. The 2024 maximum tax rate applicable with an annual taxable income of 277,826 Euros is at 45%.
Income tax is levied on taxable income, which is your business profit plus additional income (e.g., from employment, rentals, and – in certain circumstances – capital gains) minus any allowable deductions. Self-employed workers must submit an annual tax return to the tax office to declare their income and calculate their tax liability.
Solidarity Surcharge: Solidaritätszuschlag
The solidarity surcharge, or “Solidaritätszuschlag,” was initially introduced to support economic development in the eastern German states. It has meanwhile been reduced or eliminated for many taxpayers but still applies to higher income levels.
Freelancers and self-employed individuals must include this surcharge when their income tax duties exceed 18,130 Euros in 2024. In this case, the solidarity charge gradually increases to a maximum of 5.5% of the income tax amount. Although it’s a relatively small addition to income tax, it is integral when calculating net income and tax burdens.
Church Tax: Kirchensteuer
If you are affiliated with an affected religious community in Germany (e.g., Roman Catholic, Evangelic-Lutheran, or Jewish), you may need to pay church tax or “Kirchensteuer.” This tax is deducted as a percentage of your income tax, 8% in Bavaria and Baden-Württemberg or 9% in the remaining federal states.
The local tax office ensures the funds are directed to the appropriate religious institution. Hence, it is essential to declare your religious affiliation accurately when registering in Germany. If you do not wish to pay this tax, you must formally leave the church, usually at the local city hall.
Please note that Muslims, Buddhists, or Hinduists are not included in the system and do not deduct any church tax.
3. From Business Revenue to Taxable Income and Net Income
Defining your Business Profit
For freelancers, business profit is the cornerstone of their tax obligations. After subtracting all allowable business expenses from the total revenue, business profit is the net amount left.
A tax expert can help you understand legitimate business expenses to deduct from your revenue. Typical expenses include office supplies, travel, or professional fees.
Accurate bookkeeping is essential for freelancers to ensure all expenses are accounted for and appropriately deducted in case of audits.
Calculating your Taxable Income
Starting from the business profit, you can calculate your taxable income as the basis for tax calculations. Certain expenditures and allowances can significantly reduce your taxable income. This includes expenses for health insurance, pension plans, or child allowances.
Health Insurance
Health insurance is a significant consideration when calculating taxable income for freelancers in Germany. Self-employed individuals are fully responsible for their German health insurance. Premiums paid can often be deducted from taxable income, providing relief from the overall tax burden.
Pension Insurance
The German state actively encourages the building of adequate retirement savings. To a certain extent, freelancers can deduct contributions towards pension plans from their income to reduce taxable income. Different pension schemes may offer varying tax benefits, so careful consideration is required when choosing a plan.
Calculating your Taxes and Net income
Based on your taxable income, applicable tax rates for income tax, solidarity surcharge, and church tax are levied. Your net income represents the actual earnings available after fulfilling all tax obligations.
After calculating the total tax liability, subtract this from your taxable income to determine your net income. With our tax calculator above, we provide transparency on your financial situation.
Additional Taxes to Consider When Freelancing
In addition to income tax and surcharges, freelancers in Germany may need to consider other taxes, such as trade tax or value-added tax (VAT). Trade tax, or Gewerbesteuer, applies to certain self-employed occupations (Gewerbetreibende with a 2024 profit above 24.500 Euros) and varies by municipality.
End consumers pay value-added tax, which businesses can get fully reimbursed. However, it is crucial to collect VAT from any of your customers. Exceptional circumstances that do not need to consider VAT collection fall under the small business owner’s (Kleinunternehmer”) regulation.
Furthermore, freelancers should be aware of potential local taxes or membership fees specific to their business activities. These can include taxes related to the location of business operations or specific industry regulations. Consulting with a tax consultant can provide valuable insights into these additional tax obligations.
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Disclaimer:
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