Payroll tax in Germany: what EOR employers must know

German payroll tax is not a single withholding. The employer calculates wage tax, the solidarity surcharge, and church tax where it applies, while also sharing the cost of health, long-term care, pension, and unemployment insurance. Each obligation has its own contribution rate, assessment ceiling, and reporting requirement.

Several thresholds change in 2026. The basic income-tax allowance rises to €12,348, the health and long-term care contribution ceiling rises to €69,750, and the pension and unemployment ceiling reaches €101,400. Employer social-insurance costs stay broadly around 21 to 22% of gross salary, subject to the applicable ceilings.

Applying the correct tax, contribution rates, and thresholds at each stage of payroll is central to staying compliant in Germany.

German payroll tax has three separate withholdings. They are reported together through the employer’s payroll return, but each has its own legal basis and calculation method.

Lohnsteuer (wage tax). The employer withholds the employee’s income tax from monthly wages under Sections 38 and 32a of the Einkommensteuergesetz (EStG). The calculation follows the annual payroll algorithms (Programmablaufpläne) published by the Federal Ministry of Finance.

Solidaritätszuschlag (solidarity surcharge). A federal surcharge equal to 5.5% of the wage tax. Since 2021, most employees have been exempt because of higher exemption thresholds. For 2026, the surcharge generally applies only where annual income tax exceeds €20,350 for single taxpayers or €40,700 for jointly assessed taxpayers.

Kirchensteuer (church tax). Payable only by members of recognised religious communities. The rate is 8% of the wage tax in Bavaria and Baden-Württemberg and 9% in the remaining Länder. Employers calculate and withhold the tax using the employee’s ELStAM payroll data.

Employers report and remit all three withholdings together through the Lohnsteuer-Anmeldung under Section 41a EStG, even though each appears separately on the employee’s payslip.

Lohnsteuer for 2026 is calculated on taxable wages, which is gross pay reduced by the employee share of social-insurance contributions and standardised lump-sum allowances embedded in the tariff. The result feeds through the progressive tariff in Section 32a EStG, implemented in payroll software via the BMF’s wage-tax tables.

The basic allowance (Grundfreibetrag) of €12,348 means low-paid employees may see no wage tax withheld even where they are above the Minijob threshold. The BMF confirmed the 2026 tariff parameters under the Steuerfortentwicklungsgesetz, and payroll software vendors must implement them through the official Programmablaufpläne rather than by hard-coding the bands.

The class affects only the timing of wage-tax withholding. The actual annual income-tax liability is settled in the annual income-tax assessment (Einkommensteuererklärung), at which point any over- or under-withholding is reconciled. Foreign employers must not attempt to override or “optimise” an employee’s tax class. The class issued through ELStAM is what payroll applies. Adjustments are made by the employee with the tax office, not by the employer.

The Solidaritätszuschlag is a 5.5% surcharge on the wage tax, not on an employee’s income. Since 2021, most employees have been exempt because of higher exemption thresholds.

For 2026, single assessment applies where annual income tax exceeds €20,350, and joint assessment applies where annual income tax exceeds €40,700. A Milderungszone (sliding zone) applies above these thresholds before the full surcharge becomes payable. Employers calculate and withhold the surcharge automatically using the official BMF payroll algorithms and report it through the monthly Lohnsteuer-Anmeldung.

The Federal Constitutional Court confirmed the constitutionality of the solidarity surcharge in March 2025, and no legislative changes affecting the 2026 payroll rules have been enacted.

Kirchensteuer (church tax) is an employee-side surcharge on the wage tax paid by members of recognised religious communities. The legal basis is Section 51a EStG together with the church-tax laws of each Land.

The rate is 8% of the wage tax in Bavaria and Baden-Württemberg and 9% in all other Länder. Church-tax status is recorded in the employee’s ELStAM file. Employers retrieve this through the ELStAM system, calculate the withholding accordingly, and report it through payroll. Changes in church membership, such as a formal Kirchenaustritt (leaving the church), are updated through the registration authorities and reflected automatically in ELStAM.

Church tax is not an employer cost. It is withheld from the employee’s wages and remitted alongside the other payroll taxes.

Statutory social insurance in Germany comprises four branches collected as a single combined contribution (Gesamtsozialversicherungsbeitrag) and remitted to the employee’s chosen statutory health insurer, which acts as collection agency for all four.

The supplementary health contribution (Zusatzbeitrag) varies by Krankenkasse. The 2026 average is 2.9%, but a specific fund may charge more or less. Payroll must apply the rate published by the employee’s actual health insurer, not the average.

For childless employees aged 23 and over, the long-term care contribution rises by 0.6 percentage points borne entirely by the employee, taking the total long-term care rate to 4.2%. Parents with multiple children receive reductions to the employee share for each child up to age 25, set out in social-insurance regulations.

Income above the applicable contribution assessment ceiling is not subject to contributions for that branch. Because the pension and unemployment ceiling is higher than the health and long-term care ceiling, employees may stop paying health contributions before pension and unemployment contributions reach their maximum.

The Versicherungspflichtgrenze of €77,400 determines whether an employee can leave the statutory health insurance system and join private health insurance (PKV). Where an employee qualifies and opts for private cover, the employer pays a contribution towards the private premium, capped at the equivalent statutory employer contribution.

German payroll has two parallel compliance processes: wage-tax reporting to the tax office and social-insurance reporting through the employee’s health insurer. Both follow statutory deadlines and require electronic filing.

Most payroll administration in Germany happens at three stages: onboarding, changes during employment, and offboarding.

Onboarding. Employers obtain the employee’s tax identification number (Steueridentifikationsnummer), date of birth, and religious affiliation to retrieve ELStAM data from the BZSt. They also collect the social-insurance number and chosen Krankenkasse, and register the employee through the Sozialversicherungsmeldung before the first payroll run, and no later than six weeks after employment begins.

During employment. Changes to tax details, such as marital status or religious affiliation, are updated automatically through ELStAM. If an employee changes their health insurer, the employer redirects future social-insurance contributions to the new fund. Any approved Freibeträge are also reflected through updated ELStAM data.

Offboarding. When employment ends, the employer issues the final Lohnsteuerbescheinigung, submits an Abmeldung under Section 28a SGB IV to the employee’s health insurer, and processes final salary, accrued leave, and any severance through the final payroll. Tax withholding continues under the employee’s existing ELStAM data, while eligible severance payments may qualify for the Fünftelregelung (one-fifth rule).

Three payroll situations commonly need extra attention.

Mini-jobs (Geringfügige Beschäftigung). Mini-jobs are marginal employment arrangements with a monthly earnings cap linked to the federal minimum wage. For 2026, the cap is approximately €603 per month under guidance from the Minijob-Zentrale. Employers pay flat-rate social-insurance contributions and either a 2% flat-rate wage tax or tax through the employee’s regular tax class. Mini-jobs are administered by the Minijob-Zentrale, not the employee’s health insurer, so employers register separately where they engage mini-job workers.

Second jobs and Tax Class VI. Where an employee has more than one wage-taxable job, the primary employment uses the assigned tax class, while additional employments are generally taxed under Tax Class VI. Employers apply the ELStAM data exactly as issued. Any excess withholding is reconciled through the employee’s annual income-tax return.

Church-tax status changes. Church-tax liability changes when an employee’s ELStAM record is updated following a formal Kircheneintritt or Kirchenaustritt. Employers apply the status shown in ELStAM, and questions about church membership are handled between the employee and the relevant public authorities.

Foreign employers tend to run into payroll issues in six areas.

Assuming Germany has a single payroll tax. The system combines wage tax, the solidarity surcharge, church tax where applicable, and statutory social insurance. The amount withheld varies according to income, tax class, church membership, health insurer, and the applicable contribution ceilings.

Applying the solidarity surcharge to every employee. Most employees are exempt under the current threshold rules. Payroll should calculate the surcharge using the official BMF payroll algorithms rather than applying a flat 5.5% to all employees.

Changing an employee’s tax class manually. Tax classes are assigned through ELStAM and cannot be overridden by the employer. Any changes go through the tax authorities.

Treating church tax as an employer cost. Church tax is an employee-side deduction withheld through payroll. It does not increase the employer’s payroll cost.

Using the wrong health-insurance supplementary rate. Each statutory Krankenkasse sets its own Zusatzbeitrag. Employers apply the rate of the employee’s chosen health insurer rather than the national average.

Forgetting the annual contribution ceiling reset. Contribution assessment ceilings reset on 1 January each year. Payroll systems should be updated to apply the new thresholds from the first payroll of the year.

German payroll follows a recurring compliance cycle across the employment relationship. Plan for these milestones.

At onboarding, within six weeks of employment, retrieve the employee’s ELStAM data, register them with their chosen Krankenkasse, and submit the first Sozialversicherungsmeldung. For monthly wage-tax reporting, by the 10th day of the following month, file the Lohnsteuer-Anmeldung and remit wage tax, the solidarity surcharge, and church tax where applicable. For monthly social-insurance reporting, submit the Beitragsnachweis by the fifth-last banking day of the month and pay contributions by the third-last banking day. For annual reporting, by the end of February, submit the employee’s Lohnsteuerbescheinigung and Jahresmeldung. For annual payroll updates, apply the new contribution assessment ceilings and BMF payroll algorithms from 1 January each year. For ongoing changes, keep payroll records current whenever ELStAM changes affect an employee’s tax class, church-tax status, or tax allowances.

Keeping up with these deadlines takes more than accurate calculations. Employers also need to track annual threshold changes, maintain current employee tax data, and submit statutory filings on time.