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EinSteinimWald
11 months ago

The average tax rate and the limit tax rate are important concepts in the German tax system. Let us explain these two terms using an example:

Average tax rate:

The average tax rate indicates the ratio between the tax amount and the tax base (the income to be taxed).

The greater the taxable income, the more the average tax rate approaches the peak tax rate of 45%.

For example, if you have a taxable income of EUR 1.000.000, the income tax is a certain percentage of this amount.

Limit duty rate:

The limit tax rate indicates what percentage an additional income is taxed.

It refers to the tax rate at which the next euro of the tax base is charged.

If you earn more, the border tax rate increases, and you pay a higher percentage of income tax for any additional euro you earn.

In practice, this means that the average tax rate reflects the overall tax burden over the entire income, while the marginal tax rate shows how much of an increase in income actually comes from the earner.