Finance Glossary
16 financial terms explained in plain language. From gross salary to tax class – find all the key terms about salary, taxes and social security here.
Salary
Terms around gross and net salary, wages and income.
Gross Salary
Your gross salary is the number written in your employment contract – but unfortunately not what actually lands in your bank account. Out of €4,000 gross, depending on your situation, only €2,400 to €2,800 net remain.
Net Salary
Your net salary is what actually arrives in your account and what you can spend on rent, food and everyday life. From €3,500 gross, that is between €2,200 and €2,600, depending on your tax class.
Taxes
Explanations of wage tax, tax classes, tax-free allowances and levies.
Wage Tax
Wage tax is the biggest deduction from your salary – around €500-600 monthly on a €4,000 gross salary. It is withheld automatically before you ever see your money.
Tax Class
Your tax class determines how much wage tax is deducted from your salary each month. Choosing the right one can mean €300-500 more net income per month – especially important before parental leave or when partners earn different amounts.
Tax-Free Allowance
Tax-free allowances are amounts you are allowed to earn without paying tax. The basic tax-free allowance of €12,348 (2026) means: on this portion of your income, you pay zero tax.
Solidarity Surcharge
Good news: you probably no longer pay the solidarity surcharge! Since 2021, it has been completely abolished for 90% of employees. It only applies to very high incomes (over €73,000 taxable income).
Church Tax
Church tax costs you 8-9% of your wage tax as a church member. On a €4,000 gross salary, that is around €40-50 monthly, or €500-600 per year.
Progression Clause
Watch out with short-time work, parental allowance or unemployment benefit: these benefits are tax-free, but they raise your tax rate. This can lead to unexpected back payments of several hundred euros.
Social Security
Everything about pension, health, unemployment and long-term care insurance, plus contribution ceilings.
Social Security Contributions
Social security contributions eat up about 20% of your gross salary – but in return, you are covered for illness, unemployment and old age. On a €4,000 gross salary, that is around €800 per month.
Contribution Assessment Ceiling
From a certain salary onward, you no longer pay higher social security contributions. For pension insurance, the ceiling is €8,450 gross (2026) – everything above that is contribution-free.
Pension Insurance
Pension insurance is your most important building block for old age – it costs you 9.3% of your gross salary, but secures you a lifelong pension. On €4,000 gross, you accumulate about 1 pension point per year, worth around €39 per month later.
Health Insurance
Health insurance covers you in case of illness and costs around 8% of your gross salary. On a €4,000 gross salary, that is around €320 monthly – but your children and non-earning spouse are covered too, at no extra cost.
Unemployment Insurance
Unemployment insurance costs you only 1.3% of your gross salary (about €52 on €4,000), but protects you in case of job loss: you then receive 60-67% of your net salary for up to 24 months.
Long-Term Care Insurance
Long-term care insurance protects you if you become in need of care. Childless employees pay more (2.3% instead of 1.7%) – the difference is around €24 monthly on a €4,000 gross salary.
Employment
Information on Minijobs, Midijobs and special forms of employment.
Minijob
A Minijob brings you up to €603 per month tax-free and without social contributions – the money lands completely in your account. Ideal as a side job, but be aware: you barely build up any pension entitlements.
Midijob
The Midijob is the smart middle ground: earning between €603 and €2,000, you pay reduced social contributions (10-15% instead of 20%), yet still build up full pension entitlements.
Got the terms down?
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