Tax progression explained simply

In short: Tax progression means the income tax rate increases as income rises. Those who earn more not only pay more tax in absolute terms but also a higher percentage of the additional income.

In more detail: In Germany the tax rate rises in steps with taxable income.

In detail

• Basic tax-free allowance: No income tax is due up to a certain income.
• Marginal tax rate: The tax rate applied to the last euro earned.
• Average tax rate: The total tax burden divided by income, always lower than the marginal rate.
• Progression brackets: Germany uses several zones with rising tax rates up to the top rate.
• Purpose: Higher incomes contribute a larger percentage to funding public tasks.
• Misconception: A pay rise never results in less net income remaining at the end.
• Comparison: Other countries sometimes use a flat tax with a single rate (Income tax).