Lohnsteuer (wage tax) is the mechanism by which German income tax is collected at source from employment income. Governed by §§38-42f of the Einkommensteuergesetz (EStG, Income Tax Act), it requires employers to calculate, deduct, and remit tax on each employee's gross wages in the payroll period in which they are paid. Lohnsteuer is not a separate tax but an advance payment (Vorauszahlung) on the employee's personal income tax (Einkommensteuer); any overpayment is refunded through the annual tax return process.
The amount deducted depends on the employee's Steuerklasse (tax class), which is assigned by the Finanzamt (tax office) based on marital status and household income structure. There are six classes: Class I for single or separated employees, Class II for single parents, Class III for married higher earners, Class IV for married couples at similar income levels, Class V for the lower-earning partner in a Class III/V split, and Class VI for second and further employment. The Lohnsteuertabellen (wage tax tables) or the official software algorithm (Programmablaufplan) published annually by the Bundeszentralamt für Steuern (Federal Central Tax Office) determine the precise deduction.
Employers remit Lohnsteuer monthly or quarterly to the Finanzamt responsible for their registered office, accompanied by a Lohnsteuer-Anmeldung (electronic declaration). Annual reconciliation is carried out via the Lohnsteuerbescheinigung, the year-end certificate issued to each employee and transmitted electronically to the tax authorities. Errors in Lohnsteuer calculations expose employers to liability for underpayments plus interest, making accurate payroll configuration and regular audits of tax class data essential.