Tax burden: How much of your salary disappears in everyday life

When EUR 2,311 arrives in the account at the beginning of the month, it initially looks like a reasonable sum with which normal everyday life can easily be financed. If, however, the actual gross wage of EUR 3,500 is taken into account, the picture quickly becomes somewhat less appealing. Once standing orders have gone out, the car needs fuel or the holiday has to be paid for, the state takes another substantial share. Even anyone investing money for the future in a broadly diversified ETF cannot avoid the tax office.

In fact, the employer paid around EUR 4,246 for this gross wage. The difference between labour costs and gross wages consists primarily of the employer’s share of social-security contributions and levies. Income tax and church tax are later deducted from the employee’s gross wage. It does not continue tax-free after that: electricity, heating, fuel, alcohol, restaurant visits, holidays and leisure activities contain further charges.

The following calculation follows a single employee through one month. The model person lives in Bavaria, has no children, is covered by statutory health insurance and belongs to a church that levies church tax. The basket of goods does not correspond to a statistical average, but it does not finance an extravagant lifestyle.

The employer pays more than EUR 4,200

From the outset, the assumed gross wage of EUR 3,500 is not the actual cost of the labour. The employer also pays contributions to pension, health, long-term care and unemployment insurance. In this calculation, these create additional monthly costs for the employer of almost EUR 750. To pay the model person EUR 3,500 gross, the employer therefore incurs almost EUR 4,250 – the difference flows into statutory funds and levies, not into the employee’s account. The payslip is therefore always only half the truth.

On the employee side, our fictional taxpayer pays EUR 761 in personal social-security contributions and an additional approximately EUR 396 in wage tax. Because he belongs to a church in Bavaria, church tax of 8% of income tax applies, corresponding to around EUR 32 per month. Church tax is not a state tax, but it is collected through the tax administration and passed on to the church.

By the time the money is actually paid into the employee’s personal account, around EUR 1,935 has therefore flowed away. This includes approximately EUR 1,507 in social-security contributions and EUR 428 in direct taxes. To be sure, social-security contributions are not taxes and merely finance specific entitlements such as pensions, health insurance or unemployment benefits.

For the monthly budget, however, the cash flow is what primarily counts: Of EUR 4,246 in labour costs, only EUR 2,311 is available for rent, shopping and reserves. That is already only around 54%.

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Rent is only the beginning

The model person has to cover the entire month with approximately EUR 2,311 net. The basket of goods is not particularly luxurious. Cold rent is EUR 700; EUR 55 is set aside each month for a possible holiday, corresponding to approximately EUR 660 per year and therefore not even enough for a major trip, but merely for a short break.

Other typical expenses are EUR 250 for food, EUR 50 for telephone and internet, EUR 60 for clothing and household items, and EUR 225 for leisure. The car is budgeted at EUR 140 for insurance and maintenance and EUR 180 for fuel. This is not a particularly extravagant lifestyle.

All tax amounts are estimates. They may include VAT, energy and consumption taxes, vehicle tax and insurance tax. The broadcasting contribution and the fee for tax advice are not taxes. The advance lump-sum tax for the ETF portfolio is not included as a fixed amount in the monthly total because it depends on the portfolio balance, the annual base interest rate and the fund’s distributions. With a monthly savings rate of EUR 75, the advance lump-sum tax usually starts at a small amount and grows with the portfolio. In the first year, it may be less than one euro per month and later rise to a few euros on a monthly average.

The rent itself is generally tax-free for the tenant, at least. With cold rent of EUR 700, the largest individual item therefore initially remains free of charges. Additional costs, electricity and heating are not tax-free, however. Additional costs include VAT on caretaker, maintenance and trade services, for example. Electricity is subject to VAT and energy tax. With electricity costs of EUR 90, these can amount to roughly EUR 18.

For heating, much depends on the energy source. Anyone heating with gas pays not only for the energy supplied, but also VAT and the CO₂ price. In this model, EUR 20 to 30 of the EUR 130 monthly cost is allocated to this. That does not represent a luxurious lifestyle either.

The burden is particularly noticeable when refuelling

Two tanks of EUR 90 each per month should be enough for a longer commute or regular family visits. Around EUR 100 to 110 of this reaches the tax office at the pump in the form of energy tax, CO₂ pricing and VAT. VAT is even charged on the entire final price, including energy taxes and other charges already contained in it. The state takes twice here: tax on the tax on the tax.

In the monthly budget, the car costs an additional EUR 140 for insurance, vehicle tax, maintenance and minor repairs. Depending on the composition of the items, a further EUR 25 to 30 is tax-related.

Leisure also costs taxes

The EUR 225 budgeted for leisure is deliberately combined in the table: As a young employee, our model person goes out once a month and, as an example, spends EUR 80 on beer, wine and spirits. Alcohol is taxed differently – roughly, a tax share of EUR 20 to 25 can be assumed. There has been a special rule for restaurant visits since 2026: Food is subject to 7% VAT, while drinks remain subject to 19%. With monthly spending of EUR 120 and a mixed consumption of food and drinks, this produces an approximate tax burden of EUR 10 to 15.

The leisure item also includes other activities such as culture, gaming or books. Cultural events are taxed differently depending on the service. Spending on digital content, games or hardware is often subject to the standard VAT rate of 19%. Books, by contrast, are subject to 7% VAT. For the three leisure areas excluding alcohol, this produces a tax share of approximately EUR 12 to 16. Together, the leisure item comes to around EUR 32 to 41.

This amount does not represent a luxurious lifestyle either. It can consist of two evenings with friends, one or two cultural events, a new game for the consoleand a few books. Such expenses disappear under “miscellaneous” in many household calculations.

The holiday budget works in a similar way. The monthly reserve of EUR 55 initially triggers no tax. However, the annual EUR 660 later becomes a train journey or tank of fuel, overnight stays, meals out and admission tickets. Depending on the location and type, these services are subject to VAT and fuel is subject to further charges. EUR 6 to 8 per month is assumed for this on average.

Tax advice costs extra

EUR 25 per month is budgeted for tax advice. That corresponds to EUR 300 per year and would therefore probably cover only a relatively simple tax return. A tax adviser is not required by law. The effort quickly increases, however, if there is a home office, rental income, capital income from several banks or training costs, for example. Three options are then available: invest time in preparing the return yourself, pay for tax software or hire a service provider. In our example, this expense contains a tax share of around EUR 4.

The item nevertheless belongs in a calculation of everyday life. Anyone wanting to fulfil their tax obligations without specialist knowledge pays either with time, software or a service provider’s fee. The costs of the tax system do not all appear on the tax assessment. The same applies to the broadcasting contribution. It is a public-law contribution levied independently of actual television consumption. Since it reduces the amount of money available each month that could otherwise be spent, it is included in this calculation.

Those who save pay tax on the return

The main table contains a savings rate of EUR 75 for personal retirement provision. This EUR 75 comes from income on which wage tax and social-security contributions have already been charged. Anyone setting it aside at the beginning of the month has to make the remaining EUR 2,246 cover all other items. Taxation does not necessarily end there.

Assume that EUR 75 is invested every month for ten years and the investment achieves an average return of 5% per year. The initial contributions of EUR 9,000 then become approximately EUR 11,650. The increase in value would be around EUR 2,650, which triggers a tax case at the latest at that point.

Depending on the type of investment and the timing of the distribution, the return is taxed differently through capital gains tax. The advance lump-sum tax primarily concerns funds that distribute little or nothing. A portfolio can increase in value during the year even though not a single euro has been distributed and no share has been sold. Under certain conditions, the tax authorities then assess a flat minimum amount as income. Tax is already due on this. A falling fund value prevents the advance lump-sum tax, and distributions reduce the amount to be assessed. Capital gains tax therefore does not belong as a fixed item in the monthly consumption calculation, but it does belong in the calculation of personal retirement provision.

In principle, the return is taxed, not the EUR 9,000 contributed. The saver’s allowance of EUR 1,000 for single people remains tax-free unless it has already been used up by other capital income. On the remaining approximately EUR 1,650, a fully taxable investment would incur around EUR 434 in capital gains tax and solidarity surcharge. With church membership in Bavaria, the figure would be approximately EUR 467 because of the additional church tax.

Special rules can also apply to funds. Certain equity funds qualify for a partial exemption that reduces taxable income. With accumulating ETFs, the advance lump-sum tax can nevertheless lead to a tax payment before a sale. Anyone holding units for years and leaving the returns in the fund may see a debit on the cash account even though no sale proceeds have arrived in the current account.

Weakens people who have shown a minimum degree of personal responsibility

Anyone who makes their own provisions takes on the investment risk and pays charges again on the successful part. Losses can be offset against gains for tax purposes within the respective loss-offset pots, but the state does not refund a share of the loss. Retirement planning therefore depends not on the pre-tax return, but on the amount that actually remains in the portfolio after tax.

A tight monthly budget makes building wealth more difficult twice over: First, the money for the contribution is missing; later, the return is charged.

More than half consists of charges

According to this model calculation, the EUR 2,308 in monthly expenses contains approximately EUR 272 to 318 in taxes of various kinds. In our example, the total burden amounts to around 51 to 53%. More than every second euro therefore goes to the state and society. That is slightly below the ratio regularly published by the Taxpayers’ Association. It is also far from particularly extreme model examples whose baskets are much more heavily weighted towards expensive consumer goods.

Our model does not describe a luxurious life – on the contrary, the monthly budget is extremely tight. It is difficult to build up meaningful reserves or take relaxing holidays with it.

Which taxes account for the largest share

In this model, three large blocks make up the pure taxes: income tax, indirect taxes on consumption and church tax. Income tax is around EUR 396 per month, and church tax around EUR 32. Depending on the basket of goods, VAT, energy charges, consumption taxes, vehicle tax and insurance tax add up to approximately EUR 272 to 318.

Of the pure tax burden of around EUR 700 to 746, this means that approximately 53 to 57% is income tax, 4 to 5% church tax and around 39 to 43% indirect taxes. On an average assumption, consumption taxes account for approximately 41%. Income tax is therefore the largest individual item. Taken together, taxes on consumption, energy, mobility and leisure nevertheless reach almost the same order of magnitude.

The distribution also explains why the burden feels so different. Wage tax is clearly visible on the payslip. Indirect taxes arrive in small portions: during the weekly shop, on the electricity bill and particularly clearly when refuelling. The fuel item alone contributes EUR 100 to 110, around 15% of the pure tax burden in this model. Anyone who does not need a car or hardly heats their home immediately shifts this weighting.

The picture changes once social-security contributions are included. There are then around EUR 1,507 in social-security contributions compared with approximately EUR 396 in income tax, EUR 32 in church tax and EUR 272 to 318 in indirect taxes.

What the figures also make clear is that with employer gross costs of EUR 4,246, or employee gross wages of EUR 3,500, there is not much money left at the end of the month even with a very moderate lifestyle to put aside for worse times or even retirement provision. Even a modest savings plan fits into the month only if holidays and other variable expenses are severely restricted. Anyone unable to build productive income remains dependent on earned income. And with 50% more you are already among Germany’s top earners. Absurd!

SteuerlastViel Geld vom Gehalt verschwindet im Alltag

What else is planned from 2027

Shortly before the political summer recess, the federal government of CDU/CSU and SPD set several reforms in motion. The income-tax reform is intended to begin on 1 January 2027 and take full effect from 2028. Planned measures include higher allowances, a higher employee lump-sum allowance and relief for low and middle incomes. The top tax rate is to apply later. Very high incomes are to face higher charges in return. There are also plans to raise the flat tax on mini-jobs from 2 to 5% and reduce the tax deduction for tradespeople’s services from 20 to 15%.

As part of budget consolidation, the federal government has also announced a sugar levy and a plastic levy. Concrete rates and details are still missing for both measures. It is clear, however, that the state is looking for further ways to close its own budget gaps. In the longer term, this will not become cheaper for taxpayers, but rather more expensive. Experience suggests that manufacturers, retailers and consumers will at least partly pass on the costs of these two additional levies, which is likely to make soft drinks, ready meals and heavily packaged household goods considerably more expensive.

The alcohol tax on spirits and alcopops is also to rise. According to the information available so far, beer and wine are not affected. Tobacco tax is also to be increased, although smoking was not included in this calculation anyway. New taxation and reporting rules for cryptocurrencies are to be introduced.

CO₂ pricing on fuels and heating energy is already in place. With the European emissions trading system ETS2, transport and buildings are to be managed more strongly through certificates from 2027. This is not a classic tax, but it makes refuelling and heating more expensive in the same way. Drivers see it at the pump; tenants often see it only on the heating bill. Possible reforms to pensions, long-term care and health insurance likewise do not operate as taxes, but through higher contributions.

What remains at the end of the month

The model person earns EUR 3,500 gross and costs the employer around EUR 4,246. Approximately EUR 2,311 arrives in the account. After rent, energy, mobility, food, leisure, holidays, church tax, the indirect taxes of everyday life and an ETF savings rate of a modest EUR 75, EUR 2.64 remains. There is no room for major spending, and this is far from a luxurious life.

A higher basic tax allowance can relieve the employee. A sugar levy, a plastic levy, higher consumption taxes, CO₂ costs and rising social-security contributions can wipe out that relief elsewhere. Anyone wanting to build wealth must also plan for the advance lump-sum tax and capital gains tax. Between employer and portfolio there are therefore not only two taxes, but a long chain of contributions, charges and prices that is rarely visible as a whole.

The state is regularly occupied with constantly redistributing the burden and charges.

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