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How high is the income tax?

The income tax rate determines the income tax you have to pay. The income tax rate is structured as follows in 2023:

  • Your taxable income remains tax-free up to the amount of the basic tax-free allowance. The basic tax-free allowance in 2023 is €10,908 for single people and €21,816 for married couples.
  • From a taxable income of € 10,909 for single people and € 21,818 for married couples, the tax rate is 14% (basic tax rate).
  • If your taxable income exceeds the amount of € 62,810 (single) or € 125,620 (married), the tax rate is 42%.
  • From a taxable income of € 277,826 for single people and € 555,652 for married couples, the tax rate is 45% (top tax rate).

If your taxable income includes extraordinary income, you can claim tax relief under certain conditions. The reason for the tax relief is the progressive tax rate, which leads to a higher tax burden in the event of an inflow of combined income in one year. In particular, income that is received on a one-off basis (e.g. compensation payments, employee severance payments, compensation payments to self-employed commercial and insurance agents, capital gains and certain income from a multi-year activity) is considered extraordinary income. In principle, the fifths rule applies to the taxation of extraordinary income.

Alternatively, you can apply for a reduced tax rate once in your lifetime in the event of the sale or discontinuation of a business if

  • You have reached the age of 55 or
  • You are permanently incapacitated for work under social security law and
  • if your gain on the sale or transfer does not exceed € 5 million.

The reduced tax rate is 56% of the average tax rate on the total taxable income (including income subject to the progression proviso), but at least 14%.

Legal basis:

  • § Section 32a of the Income Tax Act (EStG)
  • § Section 34 EStG

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