What are the benefits of income taxes

Income tax

Income tax is used to tax the income of private households, sole proprietorships and partnerships. Income tax is the most important tax in the German tax system. It contributes around a third of the state's total tax revenue.

Taxable Income

Income tax is levied, for example, on the income of employees, on pension payments and on income from self-employed work and capital assets. In order to simplify administration and avoid tax evasion, income tax is often collected as withholding tax. This takes place in separate forms of collection such as wage tax, withholding tax on interest and capital gains tax. Income tax is due no later than May 31 of the following year.

Tariff and allowances

The tax rate is calculated according to a rate formula that leads to rising tax rates with increasing income. Since the subsistence level may not be taxed, a basic allowance remains tax-free. The tax office grants a child allowance for each child, to which a care allowance and an education allowance can be added. In addition, all expenses related to the generation of income are deductible. Exceptional burdens, such as medical costs to be borne privately, may in principle also be deducted to reduce income.


According to Article 106 of the Basic Law, the federal, state and, to a lesser extent, municipalities are entitled to the revenue from income tax.


The income tax thus serves two purposes: On the one hand, it should provide the tax authorities with the required income. On the other hand, taking into account the personal circumstances of the taxpayer, it should lead to a fair distribution of income and social equality. In realizing these goals, however, the negative effects of taxation must not be neglected. These include lower performance incentives and increasing distortions in economic decisions. Both can cause noticeable welfare losses.

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