How to benefit from tax-free allowances in Germany
Looking to save on taxes in 2023? Here, you’ll learn about the different tax-free allowances in Germany that could benefit you.
7 min read
Let’s be real: Few of us get excited about filing our tax returns, especially when it comes to wrapping our head around tax-free allowances. And the topic is especially complex in Germany, as the country has a variety of flat-rate and other types of tax exemptions you can claim. The good news? Once you’ve wrapped your head around these allowances, they can save you significant money on your taxes. At N26, we’re here to help you save like a pro with informative tax articles and smart budgeting tools. So, whether you’re claiming a basic allowance (Grundfreibeitrag), a saver’s allowance (Sparerpauschbetrag), or a child allowance (Kinderfreibetrag), read on to learn about the different savings options available to you. Let’s go!
What is a tax-free allowance?
A tax-free allowance is a legally defined portion of your income that isn’t subject to taxation — in other words, it remains tax-free. Tax-free allowances determine the amount up to which you do not have to pay taxes on your income. Some of these allowances are taken into account automatically, but for most of them, you need to apply to the tax office.
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In Germany, there are many tax-free allowances that the public can take advantage of. Here are some of the most common examples:
der Grundfreibetrag: Basic tax-free allowance
der Lohnsteuerfreibetrag: Income tax allowance
der Kinderfreibetrag: Child allowance
der Entlastungsbetrag für Alleinerziehende: Relief amounts for single parents
der Rentenfreibetrag: Retirement allowance
der Behindertenfreibetrag: Tax-free allowance for disabled persons
There’s also the saver’s allowance. Thanks to this, you can earn up to €1,000 (or €2,000 for married couples) tax free.
What is the basic tax-free allowance in Germany?
The basic tax-free allowance is a specified sum of your income that is automatically tax free. This amount is decided by the government in order to minimize the tax burden for low earners and to secure the so-called minimum subsistence level for all citizens. This means that only people who earn above the threshold of the basic allowance will have to pay income tax, and anyone below the threshold can keep their earnings tax-free.
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As of 2023, the basic tax-free allowance is €10,908 for singles and €21,816 for married couples who file their taxes jointly. As we mentioned, this allowance is to keep people at or above the subsistence level— or, the amount the government deems people will need to pay for lodging, food, and other essential living costs. The sum is determined by the average cost of necessities. For example, when everyday costs in Germany begin to rise quickly, the subsistence level is raised. In the table below, you can see how the basic tax-free allowance has risen over the last few years.
Tax year
Singles
Married couples
2023
€10,908
€21,816
2022
€10,347
€20,694
2021
€9,744 €
€19,488
2020
€9,408
€18,816
2019
€9,168
€18,336
Who receives the basic tax-free allowance?.
In principle, everyone who pays taxes in Germany can benefit from the basic tax-free allowance. This includes both in-house and self-employed workers, as well as retirees and students. The best part? You don’t need to do anything to receive it. That’s because the basic tax-free allowance is automatically taken into account by the tax office and your employer when calculating your income tax.
Is the basic tax-free allowance gross or net?
The basic tax-free allowance is deducted from your taxable income — meaning from your gross income, minus your tax-deductible expenses. These will vary from taxpayer to taxpayer. Given this, the basic tax-free allowance itself isn’t gross or net.
How much can you earn tax free?
The basic tax-free allowance is always available to you, regardless of whether you’re an employee or self-employed. That means that if you earn an average of €909 per month as a single person, you won’t have to pay any taxes on your income. If you’re married, that figure rises to €1,818 total. However, if you earn more than this amount — even if it’s just for one month — you may automatically be liable for tax payments. But don’t stress: You may be able to reclaim the money on your next tax declaration.
What is the employee flat rate?
The employee flat rate (Arbeitnehmerpauschbetrag in German) is part of so-called advertising costs, which is to say, the costs that you incur through your professional activity. In 2023, the employee flat rate is €1,230. It applies per person — this means that you can only claim the allowance once per year, even if you have multiple jobs. However, married couples filing together can claim double the amount (€2,460), provided both partners work. The employee flat rate is automatically taken into account when deducting wage tax for all employees. This means that you don’t have to submit any claims for the allowance up to this amount. Which is great: It means that your taxable income is automatically reduced by €1,230 — or €2,460 for married people (as of 2023). But it's still worth keeping your receipts for professional expenses handy. You can claim all costs that go beyond the flat rate separately as business expenses in your tax return.
How high is the tax-free allowance for retirees?
In 2005, Germany reorganized how pension payments were taxed. Since then, the exact amount of the taxable portion of the pension depends on the year in which you retire. People who receive a pension that started in or before 2005 only have to pay taxes on 50% of their pension payments. Since then, the tax rate has been increasing by one percent annually, until it finally reaches 100% in 2040. If you plan to retire in 2023, you'll have to pay taxes on 83% of your pension payment. The remaining 17% is tax-free. Of course, taxes are only due on the pension if all your income is above the basic allowance.
Retirement year
Tax-free retirement allowance
Taxable income
2020
20%
80%
2021
19%
81%
2022
18%
82%
2023
17%
83%
2024
16%
84%
2025
15%
85%
2026
14%
86%
2027
13%
87%
2028
12%
88%
Tax-free allowances for people with disabilities
Those living with a disability incur higher costs than those who don’t. To compensate for this, Germany offers a flat-rate, tax-free allowance for people with disabilities. The level of your allowance depends on the severity of your disability. Here are the figures for 2023:
Degree of disability
Tax-free allowance
20
€384
30
€620
40
€860
50
€1,140
60
€1,440
70
€1,780
80
€2,120
90
€2,460
100
€2,840
Blind, deaf and deaf/blind
€7,400
How high is the child tax-free allowance?
How high your child tax-free allowance is will be determined by your tax class. Parents in tax class 1, 2, and 3 receive a child tax-free allowance of €8,952 per child, per year. However, parents in tax class 3 will get a tax-free allowance of €4,476 per child, per year. Those with tax class 5 and 6 will receive no child tax-free allowance.
How high is the tax-free allowance for inheritance?
When it comes to inheritance, the tax-free allowance amount depends on your relationship to the person you’re inheriting money from. Simply put: The more closely you’re related, the higher your tax-free allowance. The taxable amount is the net value of the acquired assets or funds minus the tax-free allowance amount. Learn more in our article on inheritance tax.
Family relationship
Tax-free allowance
Spouse or civil partner
€500,000
Child or stepchild
€400,000
Grandchild whose parents are no longer alive
€400,000
Grandchild whose parents are alive
€200,000
Great-grandchild
€100,000
All other relatives
€20,000
Tax-free allowance for crypto and stocks
For cryptocurrencies, there’s a tax-free allowance of €600 and a speculation period of one year. This exemption limit applies to the cumulative profit from all sales transactions. If you sell your cryptocurrency within 12 months and earn a profit of less than €600, your earnings remain tax free. Important: Unlike with other tax-free allowances, the income you earn with crypto only remains tax free if you don’t exceed the limit. If you surpass the €600 by even one cent, the entire amount will be taxed. To learn more about cryptocurrency taxes, read our article on the topic here.For stocks, you can earn up to €1,000 tax free. And, as with other allowances, the amount doubles if you’re married (to €2,000 as of 2023). But note that here each cent that goes above your allowance will be taxed.
So, you want to sell your property, but you aren’t sure what taxes you’ll have to pay? Our guide will help you understand whether you need to pay speculation tax, and if so, how you can reduce it.
So, you want to sell your property, but you aren’t sure what taxes you’ll have to pay? Our guide will help you understand whether you need to pay speculation tax, and if so, how you can reduce it.
