Marginal vs. average tax rate (Grenzsteuersatz vs. Durchschnittssteuersatz)
The Grenzsteuersatz (marginal tax rate) is the tax on the next euro earned; the Durchschnittssteuersatz (average tax rate) is total tax divided by total income. In Germany's progressive income tax, the marginal rate is always equal to or higher than the average rate — every euro above the current bracket is taxed at the higher marginal rate, but the euros already taxed at lower rates keep pulling the average down.
Why it matters
The marginal rate prices decisions made at the margin: overtime, a raise, a bonus, or a deduction. A deduction's real value is deduction amount x marginal rate, not the average rate — a €1,000 deduction saves more for someone with a 42% marginal rate than for someone with a 24% one, even if both have similar average rates.
The average rate describes the overall burden: how much of total income goes to tax across the whole year. It is the right number for budgeting take-home pay, not for evaluating a single additional euro. Mixing the two up misprices both — someone might turn down overtime believing it is taxed at their average rate (overstating the loss on a small chunk, understating it on a large one) or underestimate what a deduction is actually worth.
Worked example
Take someone with a Steuerbescheid (tax assessment) showing €6,000 total tax on €40,000 taxable income. Their average rate is €6,000 / €40,000 = 15%. Under Germany's progressive income tax brackets (2026) [1], the marginal rate at that income level sits well above the average — illustratively, 30% — because only the portion of income inside each higher bracket is taxed at that bracket's rate, while earlier euros stay taxed at lower rates.
An extra €1,000 of income. At a 30% marginal rate, this person nets €1,000 x (1 - 0.30) = €700 after tax, not €1,000 x (1 - 0.15) = €850. Estimating a raise or overtime pay using the average rate overstates take-home by €150 on this €1,000 slice.
A €1,000 deduction. A deductible expense — Werbungskosten (income-related expenses) such as commuting costs or work equipment — reduces taxable income by €1,000, which lowers tax at the marginal rate: €1,000 x 0.30 = €300 saved, not €150. Deductions are worth their marginal rate because they shave off the top slice of income, the slice taxed hardest.
The same logic runs in reverse for a pay cut or reduced hours: the euros lost are the top slice, taxed at the marginal rate, not the average one.
Check yourself
A taxpayer owes €7,200 total tax on €48,000 taxable income. What is their average tax rate, as a percent (enter 15 for 15%)?
Your marginal tax rate is 35%. A deductible work expense of €2,000 (Werbungskosten) reduces your tax bill by how many euros?
You're deciding whether taking on paid overtime is worth it after tax. Which rate tells you what you actually keep from that extra pay?
In Germany's progressive income tax system, how does the marginal rate relate to the average rate for the same person?
Sources
- Bundesministerium der Finanzen — Einkommensteuertarif 2026 (progressive rate zones under §32a EStG), https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerarten/Einkommensteuer/einkommensteuer.html (2026)