Who is most affected by income tax?

Top tax rate: you should know that as a taxpayer

 

In German income tax law, there is an entry tax rate, a top tax rate and the so-called wealthy tax. In the following passages, we will shed light on what these different tax rates, especially the top tax rate, are all about.

 

Overview of income tax rates: top tax rate & Co.

In 2020, the following progression zones in the income tax rate apply to taxpayers:

 

 

 

Taxable profit

Basic tariff

(Single)

Splitting tariff (joint assessment)

Basic tax allowance

9,408 euros

18,816 euros

First progression zone

9,408 euros to

14,532 euros

18,817 euros to

29,064 euros

Second progression zone

14,533 euros to

57,051 euros

29,065 euros to

114,102 euros

Upper proportional zone

57,052 euros to

270,500 euros

114,103 euros to

541,000 euros

Top proportional zone

from 270,501 euros

from 541,001 euros

 

The The top tax rate applies to income in the so-called upper proportional zone in the income tax rate. The top tax rate in Germany is 42 percent and applies to unmarried taxpayers with a taxable income of EUR 57,052 or more and spouses or partners assessed jointly in a civil partnership with a taxable income of EUR 114,103 or more.

 

If you are the “top tax rate payer” and take a closer look at your income tax assessment, you might notice something: Even if your taxable income is more than 57,052 euros or 114,103 euros (single / joint assessment), the fixed income tax is well below 42 percent. This is because the 42 percent top tax rate only applies to income that is above the taxable income of 57,052 euros / 114,103 euros.

 

Example: Your taxable income in 2020 as a single person is 90,000 euros. An income tax of EUR 28,836 is due on this income. In relation to the taxable income of 90,000 euros, this means a tax rate of 32.04 percent.

The background: The taxable income up to 57,051 euros is subject to lower tax rates. The top tax rate of 42 percent is only due for the excess amount of 32,949 euros (90,000 euros less 57,051 euros).

 

Top tax rate is not the end of the story

As you can see from the table, there is still a tax rate for top earners that is above the top tax rate of 42 percent. With a taxable income in the uppermost proportional zone of the income tax tariff 2020 from EUR 270,501 / EUR 541,001 (single / joint assessment), an additional 3 percentage points more taxes are due. One speaks here of the so-called Wealth tax.

 

Top tax rate in Germany compared to other countries

The top tax rate in Germany of 42 percent or the wealthy tax of 45 percent are by the way not the highest tax rates in an EU comparison. The highest top tax rate is due in Sweden: it is 55 percent there.