Marginal tax rate

The marginal tax rate shows how much tax you pay on the next euro you earn – and it is always higher than your average tax rate.

Why the distinction matters:

Many people think: "I'm in the 42% bracket, so I pay 42% tax on EVERYTHING." Wrong! In Germany you only pay 42% on the part above €69,878. The first €12,348 is tax-free, the next block is taxed at 14%, and so on.

Example: €50,000 taxable income:

• Marginal tax rate: approx. 39% (on the 50,001st euro)
• Average tax rate: approx. 25% (tax actually paid ÷ income)
• Tax actually paid: approx. €12,500 (not €19,500 as it would be at 39% on everything)

The tax brackets in Germany:

• €0–12,348: 0% (basic allowance)
• €12,349–17,799: 14–24% (rising linearly)
• €17,800–69,878: 24–42% (rising linearly)
• €69,879–277,825: 42% (top tax rate)
• From €277,826: 45% ("wealth tax rate")

Why the marginal tax rate is so important:

• Pay rise: from 50k to 53k gross? €3,000 more × 39% marginal tax rate = only ~€1,830 more net
• Side job: your side income is taxed at the MARGINAL tax rate, not the average
• Income-related expenses: €1,000 of expenses saves you 1,000 × marginal tax rate = €390 at 39%