Gross pension, net pension: why the gap surprises so many
Your pension notice shows a gross pension, your bank account receives noticeably less — and the following year the tax office may get in touch as well. For pensioners in Germany, three items sit between gross and net: health insurance, long-term care insurance and income tax. The first two are withheld directly from the pension, income tax is not. That is exactly what makes the calculation so opaque for many people.
This guide explains step by step how pensions are taxed in 2026, which contributions apply and why two pensioners with the same gross pension can pay different amounts of tax. You can recalculate every example with your own figures in the net pension calculator.
Step 1: Health and long-term care insurance
Pensioners who are compulsorily insured in the health insurance scheme for pensioners (KVdR) pay half of the general contribution rate, i.e. 7.3%, plus half of their health fund's additional contribution on their statutory pension. The pension insurance pays the other half. The average additional contribution in 2026 is 2.9%, so the pensioner's share comes to 8.75%.
Long-term care insurance, by contrast, is paid by pensioners alone. The rate in 2026 is 3.6%, or 4.2% for childless people. Reductions for children under 25 also exist for pensioners, but they rarely matter any more because the children are older.
For a gross pension of €1,800 this means around €157.50 for health insurance and €64.80 for care insurance — together a little over €222 per month. You can already see these contributions on your pension notice. But they are not just a deduction: for tax purposes, you may deduct them in full as special expenses.
Step 2: The taxable share
Since 2005, pensions in Germany have been subject to deferred taxation. Contributions during working life are gradually made tax-free, and in return the pension becomes gradually taxable in old age. How large the taxable part is depends on the year the pension started. This percentage is called the taxable share (Besteuerungsanteil) and is set out in § 22 of the German Income Tax Act.
For everyone who retired in 2005 or earlier, the taxable share is 50%. Until 2020 it rose by 2 percentage points per cohort to 80%, then by one point to 81% (2021) and 82% (2022). The Growth Opportunities Act halved the increase from 2023: since then only 0.5 points are added per year. A pension starting in 2023 has a taxable share of 82.5%, one starting in 2026 84%, in 2030 86% and in 2040 91%. Pensions only become fully taxable for the 2058 cohort.
The table in the calculator shows the taxable share for every start year, together with the gross pension up to which no income tax is due.
Step 3: The pension allowance is frozen
The tax-free part of the pension — 100% minus the taxable share — is not recalculated every year. It is fixed as a euro amount in the year after the pension starts and then applies for life. This is the most important and most frequently overlooked point of pension taxation.
An example: someone who retires in 2026 with a gross pension of €1,800 has a taxable share of 84%. 16% stays tax-free. This share is fixed on the basis of the 2027 annual pension. If the pension stays the same until then, that is 16% of €21,600, i.e. €3,456 per year. If the pension rises through adjustments in later years, the allowance still stays at €3,456. Every increase is therefore 100% taxable.
That is why the tax burden of older cohorts converges with that of new pensioners. Someone who retired in 2020 only has a taxable share of 80%. But their pension has since risen by more than a fifth — from around €1,450 to roughly €1,800 — while their allowance is frozen at the 2021 level. As a result, with the same gross pension they pay almost as much tax in 2026 as someone who only retires in 2026. Our calculator models this effect by rolling your current pension back to the year the allowance was fixed, using the actual pension adjustments. If you know your allowance from your tax assessment, you can also enter it directly.
Step 4: From taxable pension to taxable income
From the taxable part of the pension, the tax office automatically deducts a flat-rate expense allowance of €102. The result is your pension income. If you have other income, such as a company pension or rental income, it is added. This gives your total income.
Special expenses are then deducted: health and care insurance contributions in full, plus a flat-rate special expenses allowance of €36 that covers donations and church tax paid, among other things. Anyone who can prove more deducts the actual amounts. What remains is your taxable income.
For the example with a €1,800 pension starting in 2026, it looks like this:
- Annual pension: €21,600
- minus pension allowance (16%): €3,456
- minus flat-rate expenses: €102
- minus health and care insurance: €2,667.60
- minus flat-rate special expenses: €36
- = taxable income: around €15,338
Step 5: The 2026 income tax tariff
The normal income tax tariff under § 32a of the Income Tax Act is applied to taxable income. In 2026 the basic tax-free allowance is €12,348. Up to this amount no tax is due. Above it, progression begins with an entry rate of 14%.
In the example, just under €3,000 lies above the basic allowance. Income tax comes to around €500 a year, or about €42 per month. The solidarity surcharge only applies once income tax exceeds €20,350 — practically never for pensioners. Church members additionally pay 8% (Bavaria, Baden-Württemberg) or 9% of income tax as church tax.
All in all, around €1,536 net per month remains from €1,800 gross. Deductions add up to just under 15% of the gross pension, and the largest part is social insurance, not tax.
How much pension is tax-free?
The most common question is: up to what pension do I pay no tax? There is no fixed limit, because it depends on the start year and on health insurance contributions. For a compulsorily insured pensioner with children, the average additional contribution and no other income, the following roughly applies in 2026:
- Pension started in 2005 or earlier: tax-free up to around €1,830 gross per month
- Pension started in 2015: up to around €1,560
- Pension started 2020 to 2026: up to around €1,450
- Pension started in 2030: up to around €1,410
- Pension started in 2040: up to around €1,320
The values for older cohorts are lower than the taxable share alone would suggest, because of the frozen allowance. The calculator shows your personal value in the "tax-free up to" tile.
Company pensions and other income
A company pension from direct insurance or a pension fund is usually fully taxable. Contributions come on top: compulsorily insured pensioners pay the full health insurance rate of 14.6% plus the full additional contribution on their company pension. There is, however, an allowance of €197.75 per month (2026) — only the part above it is subject to contributions. In care insurance the same amount is only a threshold: once it is exceeded, the entire company pension counts.
Rental income, interest above the saver's allowance or a side income increase taxable income and therefore also the tax rate on the pension. For compulsorily insured pensioners, rental income is free of contributions. Voluntarily insured pensioners, on the other hand, pay contributions on all income — up to the contribution ceiling of €5,812.50 per month.
Common mistakes
- Tax is not withheld: Unlike wages, there is no automatic tax deduction. Tax is assessed afterwards. Anyone who pays tax regularly receives quarterly prepayment demands.
- Filing obligation overlooked: It arises as soon as total income exceeds the basic allowance — even if no tax is due in the end because of health insurance contributions. The tax office receives pension data electronically.
- Pension increases underestimated: Because every increase is fully taxable, many pensioners slip into tax liability after a few adjustments without noticing.
Conclusion
The net pension results from three components: health and care insurance, which are deducted directly, and income tax, which comes via the tax return. What matters for tax is the taxable share of your start year and the frozen pension allowance. With the net pension calculator you can see in seconds what you keep. How high your pension will be in the first place is estimated by the pension calculator. If you keep working after retirement, the active pension calculator explains the tax rules for additional earnings.
Note: this article reflects the situation as of 24 September 2026 and does not replace tax advice.