Lohnsteuer is the German mechanism for collecting income tax from employment at source. The employer calculates it, deducts it from gross pay and remits it to the tax office, in the same spirit as PAYE in the UK or withholding in the US.
Tax classes
The amount withheld depends heavily on the employee's tax class, which reflects marital status, whether a spouse is also earning and whether the employee has children or a second job. Two people on identical gross salaries can take home noticeably different net pay purely because of their class. Employees can change class after a change in circumstances, and married couples can choose between combinations that shift the withholding between them.
What sits alongside it
- Solidarity surcharge, now applying only above certain income levels
- Church tax, where the employee is a registered member of a collecting religious community
- Social insurance contributions, which are calculated separately from wage tax
Why it matters when hiring internationally
Because withholding is class-dependent, German employees pay close attention to their net figure and will query it. Getting the class or the surcharge wrong produces a visible error on the payslip rather than a silent one. It also means a gross salary offer communicates less about take-home pay in Germany than it does in many other markets.