Income tax for freelancers – how much tax do I have to pay in Germany?
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Working as a self-employed professional has many advantages: You are your own boss and you can choose your clients, your working hours and your place of work completely by yourself.
However, anyone who works as freelancer also has to deal with the subject of taxes, at the latest when the first Einkommensteuererklärung (income tax return) is due. Then, many freelancers and Gewerbetreibende (trade persons) ask themselves: How much taxes do I actually have to pay?
In this article we will therefore give you an overview of the different taxes that you have to pay as a self-employed professional.
At the bottom of this page, you will also find a link to our free tax calculator, which you can use to easily calculate your taxes and income.
➡️ Click here to go directly to the tax calculator.
- What is income tax?
- How much income tax do I have to pay?
- Self-employed in Germany: Which taxes do I have to pay?
- Taxes for freelancers: How can I manage my money?
Income tax explained: What is income tax (Einkommensteuer?)
Income tax is a tax that every taxable person in Germany must pay. This means that as soon as you earn money, you also have to pay tax on it. This applies to salary from employment as well as income from self-employment.
How much tax you have to pay is defined in the Income Tax Act (EStG). There is both a tax allowance for low income and a Spitzensteuersatz (top tax rate) for high earners.
For example, if you are employed by a company, income tax is deducted directly from your salary. The income tax for freelancers, on the other hand, is not deducted from your income. Rather, you have to take care of calculating the amount of your income tax yourself and set aside money to pay the tax with your tax return.
➡️ Click here to see how easy you can submit your income tax return with Accountable.
How much income tax do I have to pay?
You can use the current tax rate (Steuersatz) to calculate the income tax yourself. Just take the following information into account:
- The amount of your taxable income
- The number of your children (if any)
- Information about your business expenses
- Information about your working life (weekly working hours, vacation days, etc.)
If you have this information, you can easily calculate the amount of your income tax using our free tax calculator.
Tax rate for freelancers
In Germany, the tax rate for the self-employed professionals is composed in the same way as for employees. You can find the exact formula in the Einkommensteuergesetz (Income Tax Act), more precisely in §32.
The different income levels – currently there are 5 categories – are recorded there. Depending on the amount of your income, your respective tax rate is calculated. This means: The more you earn, the higher the percentage of income tax that you will have to pay.
The lowest tax rate is currently 14% and increases linearly with higher income. The top tax rate is 42% – which is due when you have an income of at least 57,918EUR or higher. Starting from 274,613EUR the maximum rate for taxable income of 45% applies. If your income is even further above this limit, you will always have to pay this tax rate.
In addition to this, there is a so-called Steuerfreibetrag (tax exemption), which does not have to be taxed.
The Steuerfreibetrag (tax exemption) for freelancers
The allowance for self-employed work is the same as for employed work. In 2022 the limit is 10.347EUR. Meaning you do not have to pay tax on this amount at all. Anything you earn beyond this amount, however, is taxed normally.
Good to know: Even if you earn 20,000EUR or more, the freelance tax allowance of 10.347EUR applies. This means that you earn this amount tax-free and only the difference of 9.653EUR is charged at the appropriate tax rate. This also applies to each of the other tax levels.
Part-time self-employed: How to calculate taxes
If you are permanently employed, but receive additional income from self-employment, you must also state this income in your income tax return and tax it.
In the case of a freelance part-time job next to a permanent position, you have to add up the sums of both incomes and pay taxes.
Example of taxes for a freelance part-time job:
In your position as employee you earn 35,000EUR while earning an additional 15,000EUR a year due to your part-time freelance job.
In this scenario, you have to pay tax on the sum of the two incomes, i.e. 50,000EUR.
For your self-employment, however, it is the profit that applies here. Thus, you can deduct all necessary business expenses and therefore reduce your tax burden.
You then state the income from your self-employment in your tax return in Anlage S for freelancers or Anlage G for Gewerbe (tradespeople).
➡️ This is what you can deduct from your tax as a part-time self-employed professional!
Self-employed in Germany: Which taxes do I have to pay?
Before becoming self-employed, you should ask yourself this question: How much will I earn as a self-employed person? Or more precisely: What is left of the money that I’ll earn for myself? Because there are actually a couple more taxes that you have to pay in addition to income tax.
1. Income Tax
As already described above, everyone working in Germany has to pay income tax – regardless of them being self-employed or employed. The income tax is calculated from the sum of your earnings over a year. The financial year is identical to the calendar year, i.e. January to December.
As a self-employed person, however, you can still deduct business expenses from your income tax burden and thus reduce the amount of your total tax burden.
➡️ You can deduct your Home Office, for example. Find out how!
2. Value Added Tax – VAT
The second tax that is relevant for the self-employed is VAT. It taxes the turnover for each product sold or for each service provided by companies and self-employed professionals.
Depending on the product or service, a tax rate of 7% or 19% applies. Find out when and which VAT rates apply in this article.
You have to state VAT on your invoices, collect it from your clients and then regularly submit it to the Finanzamt (tax office) via the Umsatzsteuervoranmeldung (VAT return).
➡️ VAT return with Accountable – that’s how easy it is!
However, there is one exception: Kleinunternehmer(small businesses) are exempt from VAT. In our comprehensive guide for Kleinunternehmer, we explain how to make use of the Kleinunternehmerregelung, what the corresponding VAT allowance is and also what happens if you exceed this allowance.
3. Social Security Contributions
In addition to income tax and VAT, there are so-called social security contributions that employees have to pay. They comprise the following components:
- Health insurance
- Pension insurance
- Unemployment insurance
- Nursing care insurance
- Accident insurance
In the case of permanent employees, these amounts are deducted directly from their wages.
Freelancers however do not have to pay these social security contributions. Because if you work for yourself, you also have to take care of your own social security.
➡️ These insurances you should have as a freelancer.
4. Solidaritätszuschlag (Solidarity surcharge)
Finally, you also have to deduct the so-called solidarity surcharge, also known as “Soli”, from your income.
“Soli” was introduced shortly after the fall of the Berlin Wall, among other things to finance the costs of the German reunification. The amount of the solidarity surcharge is calculated as a percentage – essentially, it’s 5.5% of your income tax.
However, since January 1st 2021, the allowance for the “Soli” has been significantly increased. This means that the solidarity surcharge will no longer apply to around 90% of taxpayers this year. Only top earners can be disregarded from this new regulation: Anyone with a very high income must continue to pay the full rate.
Freigrenzen, bis zu denen kein Solidaritätszuschlag anfällt:
As mentioned above, in 2021 the annual allowance limit – up to which no solidarity surcharge is required – has been increased significantly. In the case of a single person, it increases from 972EUR to 16,956EUR, with married couples it increased from 1,944EUR to 33,912EUR.
➡️ Find more info about the Solidaritätszuschlag here.
Summary: This is what’s left after taxes from your income as freelancer
Let’s summarize the taxes you must pay as a self-employed professional.
If you earn for example 35,000EUR a year, you have to pay income tax on it. If you had business expenses, you could deduct them from your taxable income:
Business expenses: 1,000EUR
Taxable income: 34,000EUR
According to the current tax act (2021) your average tax burden is 19%, corresponding to 6,338EUR of income tax in this example. This amount falls within the allowance limit for the solidarity surcharge, which is why you do not have to pay any further Soli here.
So, you still have 28,662EUR (net) left over from your original 35,000EUR (gross).
You still have to deduct the cost for your social security contributions from this, i.e. at least your health insurance and at best also your pension insurance and other forms of protection such as accident or unemployment insurance.
Taxes for freelancers: How can I manage my money?
Especially in the beginning it can be difficult to accurately calculate the amount of your income tax. Because for this you not only have to know your individual tax rate, but also forecast your sales before taxes for the whole year.
Luckily, there are some tools that will help you calculate your income tax as a self-employed person and help with bookkeeping.
Taxes and Bookkeeping for freelancers
To save taxes as a a freelancer, you have to have an overview of your income and your business expenses. Accountable helps you to keep track of your money. It is super easy to download the free app. In fact, you can start saving your invoices digitally right away.
That’s what our photo recognition is for. With it you can simply take a picture of your receipts and save them in the app. Accountable automatically calculates your VAT and income tax from this and also helps you to quickly and easily submit your VAT return to the Finanzamt!
➡️ Download Accountable for free!
Free tax calculator for freelancers
In addition to our free app, we also offer a helpful gross net calculator for self-employed workers. With the help of the tax calculator you can easily calculate your self-employed salary and also determine your tax burden.
Calculate your taxes now: Click here to check out the free tax calculator for freelancers.