For employees, the income tax payable on wages is levied by way of deduction from wages (wage tax). The taxation procedure is generally completed with the deduction of tax, unless the employee is still obliged to make an income tax assessment after the end of the calendar year or the employee applies for this.
The employer must withhold income tax from each salary payment for his employees. The basis for the wage tax deduction are the individual wage tax deduction characteristics, which are permanently stored in a central database of the tax authorities(electronic wage tax deductioncharacteristics- ELStAM) and are made available to the employer for electronic retrieval. Stored are, for example, tax class, factor if applicable, number of child allowances, other allowances, but also the church tax characteristic.
Any excess income tax withheld during the calendar year is refunded to the employee at the end of the year. This is done by way of the (company) annual wage tax equalization with the employer, which the employer must carry out in certain cases, and/or through an application assessment by the employee to the tax office (e.g. to have income-related expenses taken into account retrospectively).
In certain cases, an income tax assessment is also mandatory for employees to determine their annual tax liability. These are in particular cases in which the employee has received other income or an allowance has been taken into account in the wage tax deduction procedure and the wages earned by the employee exceed certain limits. In the income tax assessment, excess tax withheld is also refunded, but underpaid tax is also claimed.