Most people wait until the end of the year to get money back from the tax office via their annual tax return. But you don’t have to wait.
The tax office offers several ways to reduce the tax withheld from your paycheck. Here are 8 ways to increase your net income in Germany.
1. Apply for a tax-free allowance with your employer
Your employer automatically deducts the flat-rate for work-related expenses (Werbungskosten) of 1230€ (as of 2026) before calculating the monthly taxes. But if your actual expenses are higher than the flat rate, your employer doesn’t know that and continues to withhold too much tax every month.
This is the tax you get back when you file the tax return at the end of the year. However, you also have a way to not pay the taxes to start with.
You can inform the tax office about your actual work-related expenses. This allows your employer to consider actual expenses rather than the flat rate. Hence, reducing your tax burden and increasing your net monthly income.
How can you inform the tax office about your actual expenses?
- You can inform the tax office about your actual expenses by filing a tax reduction application (Antrag auf Lohnsteuer-Ermäßigung).
- Once approved, the extra deductible amount is entered in the electronic payroll system (ELStAM).
- Your employer pulls your information from ELStAM and applies it when calculating the monthly tax.
- As the deductible amount is higher than the flat rate (1230€ (as of 2026)), the tax withheld by your employer is reduced.
Here are the work-related costs you can deduct from your taxes.
- Commuting expenses (Entfernungspauschale)
- Home office flat rate: 1260€ (as of 2026)
- Union fees, professional association memberships, and work tools
- Childcare costs: up to €4,800 per child under 14 per year (80% of actual costs)
- Maintenance payments (Unterhalt). If you send money back home, you can deduct it from taxes
- Extraordinary expenses (außergewöhnliche Belastungen) such as high medical costs
By declaring these expenses in advance, you can get more net pay in your bank account. You can then use this extra income to invest.
Other work-related costs you can deduct from taxes ->
Example: Suppose you earn €40,000 gross and commute 47 km each way to the office. Your tax-deductible travel costs are €3,930 (€0.38 × 47 km × 220 days).
After subtracting the €1,230 flat rate from your tax-deductible travel costs, you have an additional €2,700 left. You can declare it to the tax office and save around 67.50€ per month (assuming a marginal tax rate of 30% -> ((30% of 2700) / 12) = €67.50 per month).
NOTE: The allowance can be set for one or two years at a time (for example, 2026 and 2027 together) if your situation stays stable. This saves you from reapplying every year.
The deadline to apply for 2026 is 30 November 2026. You can file this via ELSTER.
2. Optimize your tax bracket if you are married or in a registered partnership
Your income tax (Lohnsteuer) is calculated based on your tax bracket (Steuerklasse). If you are married or in a registered civil partnership, your bracket combination determines how much tax is withheld from each partner’s paycheck every month.
Tax class III/V: The partner in class III pays very little income tax; the partner in class V pays substantially more. This combination reduces total monthly withholding if one partner earns significantly more than the other. It makes sense when the income difference is large.
Tax class IV/IV: Both partners pay based on a standard rate. This is better suited for couples with similar incomes and avoids large back-payments at tax filing time.
NOTE: Switching to III/V often means a significant back-payment when you file your tax return, because total tax withheld during the year may fall short. Always calculate this before switching.
How to change the tax class in Germany ->
3. Claim capital gains below the tax-free threshold (NV-Bescheinigung)
If your total annual income from all sources is likely to remain below the basic tax-free allowance (Grundfreibetrag), you can apply for a non-assessment certificate (NV-Bescheinigung). The basic tax-free allowance is 12,348€ (in 2026).
You can apply for the non-assessment certificate at your tax office. Once issued, you submit it to your bank.
Your bank then pays out interest, dividends, etc. (capital gains) without deducting the withholding tax and the solidarity surcharge.
What is a withholding tax, and how much do you pay? ->
4. Tax benefit of the 1000€ capital gains allowance
Another way to avoid paying the withholding tax is to submit an exemption letter to your bank or trading account. This way, the bank won’t charge a withholding tax on up to €1,000 of capital gains.
Best free bank accounts in Germany ->
Best free trading accounts in Germany ->
The bank will start to charge the withholding tax once your capital gains exceed this threshold (1000€). The threshold is €2,000 for couples as of 2026.
NOTE: Anyone can submit the exemption letter to their bank. This is separate from the NV certificate explained in point 3 above.
What is an exemption letter, and how do you submit it? ->
5. Negotiate tax-free employer benefits instead of a gross salary increase
A gross salary increase of €200 per month does not result in €200 extra in your pocket. After income tax and social security contributions, you may keep only €80–110 of it, depending on your tax rate.
Different tax rates in Germany ->
Certain employer benefits are tax and social security contribution-free. This means €1 of benefit equals €1 in your pocket.
To qualify for the tax exemption, the employer benefits must be provided on top of your existing salary and not as a replacement for it.
The most useful employee benefits are:
- Monthly non-cash benefit (Sachbezug): Up to €50 per month as a voucher or benefit card. E.g. for supermarkets, fuel, or local shops. Must meet the criteria of the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, or ZAG). Generic Amazon gift cards do not qualify; purpose-restricted prepaid cards do.
- Job ticket / Deutschlandticket subsidy: Your employer can pay your Germany-wide public transport ticket (Deutschlandticket) fully tax-free (§ 3 Nr. 15 EStG). The Deutschlandticket costs €63/month in 2026. Please note that this benefit reduces your deductible commuting allowance (Entfernungspauschale) by the subsidized amount.
How much commuting allowance can you claim on your tax return in Germany ->
- Meal subsidy (Essenszuschuss): Up to €7.50 per working day can be provided tax-free via digital meal vouchers. At 15 working days a month, that is up to €112.50 per month in additional purchasing power.
- Childcare subsidy (Kindergartenzuschuss): Employer contributions to childcare for children below school age are fully exempt from income tax and social security under § 3 Nr. 33 EStG. Moreover, there is no cap/limit. This can make a large difference for parents paying Kita fees in major cities.
- Personal occasion gifts: Up to €60 per occasion for birthdays, weddings, and anniversaries are tax-free.
Many companies are open to restructuring part of a pay rise into tax-free benefits, as this also reduces their employer-side social security contributions.
What comprises social security contribution in Germany, and how much do you pay ->
6. Contribute more to a company pension scheme
Contributions you make to a workplace pension (betriebliche Altersvorsorge, or bAV) through salary conversion (Entgeltumwandlung) reduce your taxable gross salary. In 2026, you can contribute
- up to €604 per month tax-free (4% of the general contribution ceiling for statutory pension insurance) and
- up to €302 per month free of social security contributions.
Your employer is legally required to contribute at least 15% on top of whatever you contribute.
Company pension plans in Germany, and when it is worth contributing to them ->
7. Leave the church to stop paying the church tax
Church tax (Kirchensteuer) amounts to 8% (Bavaria and Baden-Württemberg) or 9% (all other states) of your income tax bill. If you are in the 30% tax bracket and earn €50,000 gross, you pay about €800 in church tax per year.
If you are not an active member of a church community, you can formally leave the church (Kirchenaustritt). You can do so at your local registry office (Standesamt) or at a notary.
The processing fee to leave the church is around €30. Once processed, your employer is informed via ELStAM and removes the church tax from your payroll.
Leaving the church is a personal decision.
8. Invest in a new-build property to reduce your taxable income
Take advantage of the new 5% degressive depreciation rule for the new-build properties. By investing in a new build, you can deduct 5% of the building’s value from your taxes.
If you are a high earner, this creates a substantial annual tax deduction that reduces your taxable income.
