Glossary

The most important terms around salary, taxes and social contributions in Germany – explained clearly.

Gross salary: The contractually agreed salary before all deductions. Income tax, possibly solidarity surcharge and church tax, plus the employee shares of social insurance are deducted from it.
Net salary: The amount left of the gross salary after taxes and social contributions – what gets paid out. For privately insured employees, the tax-free employer subsidy is added and the own PHI premium deducted.
Tax class (1–6): Determines how much income tax is withheld monthly. Class 1: single. Class 2: single parent (with relief amount). Classes 3/5: married couples with unequal income (3 = less withheld, 5 = more). Class 4: married couples with similar income. Class 6: second jobs. The tax class does not change the final annual tax – that is settled with the tax return.
Wage tax (Lohnsteuer): The monthly prepayment of income tax withheld by the employer. It is calculated according to the official calculation procedure (PAP) of the Federal Ministry of Finance and depends on gross salary, tax class and allowances.
Basic allowance: The subsistence minimum that remains tax-free – 2026: €12,348 per person per year. Only income above this is taxed.
Solidarity surcharge: A 5.5% surcharge on income tax that since 2021 only applies to higher incomes (exemption threshold with sliding zone). For around 90% of employees it is €0.
Church tax: Withheld for members of tax-collecting religious communities: 8% of income tax in Bavaria and Baden-Württemberg, 9% in all other federal states. Child allowances reduce the assessment base.
Child allowance factor (ZKF): The child allowance counter in the electronic wage tax data (ELStAM). Each child grants one full allowance (counter 1.0), usually split between parents (0.5 each). In monthly payroll it only affects solidarity surcharge and church tax – income tax relief comes via the comparison with child benefit in the annual return.
Wage tax allowance (ELStAM): An annual allowance registered with the tax office (e.g. for high work-related expenses, commuter allowance for long commutes, or double household) that directly reduces monthly taxable income – more net now instead of a refund later.
Factor method (tax class 4 + F): Alternative to tax classes 3/5 for married couples: the tax office calculates a factor (e.g. 0.872) that distributes the wage tax of both partners proportionally to their actual income ratio. Avoids large back payments and does not disadvantage the lower-earning partner.
Social insurance: The four statutory insurances for employees: health, long-term care, pension and unemployment insurance. Contributions are generally split equally between employee and employer (exceptions: childless surcharge in care insurance, Saxony).
Contribution assessment ceiling (BBG): The income limit up to which social insurance contributions are calculated – income above remains contribution-free. 2026: €101,400/year for pension and unemployment insurance, €69,750/year for health and care insurance.
Statutory health insurance (GKV): Mandatory insurance up to the compulsory insurance threshold. Contribution: 14.6% (general rate) plus the insurer-specific supplemental rate, split equally between employee and employer – capped by the health insurance BBG.
Supplemental health contribution: Insurer-specific surcharge on the general GKV rate, also split in half. 2026 average: 2.5%. Switching insurers can directly increase your net salary.
Private health insurance (PKV): Alternative to statutory insurance for employees above the compulsory insurance threshold, civil servants and the self-employed. The premium depends on age, health and tariff instead of income. The employer pays a tax-free subsidy of up to half the premium (capped, Sec. 257 SGB V).
Long-term care insurance (PV): 2026 rate: 3.6%, split in half (1.8% employee / 1.8% employer). Childless employees over 23 pay a 0.6% surcharge alone. From the 2nd child under 25, the employee share drops by 0.25% each (max. 4 children). Special case Saxony: employee 2.3%, employer 1.3%.
Pension insurance (RV): 2026 rate: 18.6% up to the BBG, split equally between employee and employer (9.3% each). Civil servants, judges and soldiers as well as members of professional pension schemes are exempt.
Unemployment insurance (AV): 2026 rate: 2.6% up to the BBG, split in half (1.3% each). Civil servants and board members of stock corporations are exempt.
Benefit in kind (geldwerter Vorteil): Non-cash benefits from the employer with monetary value – company car for private use, vouchers, subsidised housing, staff discounts. They increase taxable income unless a tax exemption or exemption limit applies.
1% rule: Flat-rate method for private use of a company car: 1% of the gross list price per month as a taxable benefit, plus 0.03% per kilometre for the commute. EVs are favoured at 0.25% (up to the list-price cap) or 0.5%, qualifying plug-in hybrids at 0.5%. Alternative: logbook method.
€50 benefit exemption limit: Benefits in kind such as vouchers or fuel cards remain tax-free up to €50/month (Sec. 8 (2) s. 11 EStG). Caution, exemption limit rather than allowance: if exceeded by even one cent, the entire amount becomes taxable and subject to contributions.
Occupational pension (bAV): Salary conversion into a direct insurance, pension fund or pension scheme. In 2026 tax-free up to €676/month and contribution-free up to €338/month (8% and 4% of the pension BBG). Lowers taxes and contributions today – the later pension is fully taxable in return.
Tax progression: The income tax rate rises with income: from the entry rate of 14% via the top rate of 42% to the "wealth tax" of 45%. Important: the top rate only applies to the income portion above the respective threshold – not to the entire salary.
Official calculation procedure (PAP): The Federal Ministry of Finance's official algorithm for wage tax withholding. Every payroll software in Germany – including Incomly – calculates exactly according to this procedure.

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