Being in the correct tax class puts more money in your pocket every month and leads to higher social security benefits like parental allowance, unemployment benefits, etc.
Key Takeaways
Using the right combination of income tax classes can improve a married or registered civil partner's unemployment, sickness, maternity, or parental benefits.
Different combinations of tax brackets are available to spouses. Picking the right combination of tax classes can lead to less tax.
You always pay income tax in advance every month or quarter. The tax office (Finanzamt in German) calculates the actual tax when you submit your tax return.
Income taxes and social security deductions are a percentage of your gross pay, calculated based on your tax bracket.
There are six tax classes in Germany. But if we include tax class IV with a factor, it would be seven tax classes. The payroll tax deduction depends on your tax class.
When your tax class changes due to, for example, a change in your partnership status or the addition of a second employment, you must notify the local tax office (Finanzamt in German).
Your total yearly tax deductions depend on your taxable income, i.e., your salary, income from properties or investments, or any other income.
Germany's progressive tax rate ranges from 14% to 45%, depending on your earnings.
Germany's basic tax-free amount (Grundfreibetrag) as of 2023 is 10,908€ per annum. It means you do not pay tax if you earn less than 10,908€ annually.
The basic tax-free amount will increase to 11,604 € in 2024.
This is how you do it
You must submit a tax return if you choose the tax class combination 3/5 or 4/4 with a factor.
A spouse in tax class 3 or 5 can apply for a tax class change without their partner's consent.
You must complete the "Application for a Change of Tax Class for Spouses/Life Partners" to change your tax class.
The employer must account for the new tax class in the payroll beginning next month.
Table of contents
How to choose the right income tax combination for married couples?
What is the electronic wage tax card (Lohnsteuerkarte in German)?
Receive more parental allowance and other social security benefits by picking suitable tax classes
How does separation or divorce affect ex-partners' tax classes and annual income tax?
How does reconciliation affect couples' tax classes and yearly tax returns?
In this guide, we will learn about
How selecting the appropriate tax class can increase your monthly income.
The combinations of tax classes, married couples, or registered partners can use to increase their family income.
Which German tax class can you choose to receive more money in case of loss of income or wage replacement benefits (Entgeltersatzleistungen in German)?
The seven German tax classes (Steuerklassen in German).
How does a divorce or splitting affect your tax classes (Steuerklassen in German)?
How to choose the right income tax combination for married couples?
You can use the wage and income tax calculator from the Federal Ministry of Finance to find the right tax class combination.
It's critical for married couples and registered civil partners to choose a suitable tax class, as unlike single people, they can choose their tax class.
And the right combination of tax classes can lead to higher income.
Furthermore, the correct payroll tax classes can raise benefits for maternity, disability, sickness, and childcare.
Since 2018, the German tax office has extended the assignment of tax class 4 to everyone who gets married. Thus, after marriage, married couples automatically get assigned to tax class 4.
It means that even if only one of the spouses works, they both initially get the tax class 4. Hence, if the assigned tax class, i.e., 4 in this case, is unfavorable for you, you should switch.
How to switch tax classes in Germany?
To switch your tax class, you must apply for a change of tax class to your local tax office (Finanzamt in German).
You can submit the application form to the tax office or apply online on Elster.
The good news is since 2020, you can change your tax classes several times a year.
Three combinations of tax classes (Steuerklassen in German) are available to married couples.
Married couples who live together in the same house can choose from one of the three combinations of tax classes.
They both can opt for tax class 4. This combination of tax classes is for married couples earning a similar gross salary.
The higher earner chooses tax class 3, and the other picks tax class 5. This combination makes sense if one of the spouses' incomes is significantly higher than the other.
Lastly, they choose the tax class combination 4/4 with a factor.
NOTE: You must file an income tax return if you select option 3/5 or option 4 with a factor. But irrespective of which tax class you choose, it's worth filing a tax return.
A spouse can change their tax class without needing the other partner's signature.
As of 2018, a spouse with a tax class 5 or class 3 can submit a tax class change application independently.
Here's an example: The lower-earning partner has high tax deductions under tax class 5. As a result, their net income is very low.
Thus, to receive a higher monthly net income next month, they can apply for a tax class change at the local tax office (Finanzamt in German).
And as per the 2018 regulation, they don't need the other partner's signature to change their tax class. So, in this case, the tax office assigns both spouses the tax class 4.
You can find the tax class change form online on the form management page of the tax office. It's called "Antrag auf Steuerklassenwechel bei Ehegatten/Lebenspartnern"
How can you save income tax in Germany if your partner files for bankruptcy?
You can save money by switching tax classes if your spouse is bankrupt or authorities confiscate their salary.
Choose the tax class combination so your bankrupt spouse bears the greater tax burden. German law expressly permits married couples to do it as per the judgment of FG Münster on October 4, 2012 (Az. 6 K 301/10 E).
The tax office in Germany automatically assigns tax class 4/4 to registered same-sex partners.
The tax office in Germany treats registered same-sex partners the same as married couples for tax purposes.
However, earlier, registered same-sex partners weren't automatically given the tax class combination 4/4. But it has changed since November 2015.
From November 2015, tax offices started exchanging data to produce electronic wage tax deductions for registered life partners.
As a result, anyone registering their partnership in Germany after Nov 2015 gets the tax class combination 4/4 automatically from the tax office.
But you can always change your tax class by submitting a tax class change application to your local tax office (Finanzamt in German).
Some registered same-sex partners might want to keep their registered partnership private from their employer. In this case, they can choose tax class I.
Of course, tax class I is less favorable, but it will keep your registered partnership hidden from your employer.
But the Rheinland-Pfalz state office points out that the employer cannot draw any conclusion about your marital status based on the data transmitted by the tax office.
Hence, you can pick the tax class combination that generates higher income without worrying about your employer.
What is the electronic wage tax card (Lohnsteuerkarte in German)?
The electronic wage tax card now replaces the traditional wage tax card, which was once constructed of colored cardboard.
The new electronic wage tax card contains the employee's tax-related information, like the tax bracket, child allowances, and church tax obligations.
The electronic wage tax card is also known as "elektronischen Lohnsteuerabzugsmerkmale" or Elstam for short.
What is tax class 4 with a factor?
Spouses or life partners with different salaries often choose the tax class combination 3/5. It makes sense if one partner makes at least 60% of the taxable income.
However, the biggest disadvantage of this tax class combination is the partner in tax category V suffers from high tax deductions.
So, you can opt for the tax classes 4/4 with a factor to balance the tax paid by both partners.
Moreover, the federal government plans to abolish the 3/5 tax class combination in its coalition agreement. Hence, the German government will transfer married couples to the 4/4 variation with a factor in the future.
Here are the characteristics of the "4/4 with a factor" tax classes combination:
The 4/4 factoring method results in a fairer allocation of the salary tax burden on both couples.
The difference between the income tax deduction over the year and the tax liability at the end of the year is small. Hence, you don't have to worry about high tax payments while filing annual tax returns.
The tax refund from the tax office is usually small unless the couple has larger items to deduct.
In the 4/4 factor method, the tax office calculates the "factor" based on the person and is less than 1.
The tax office reduces the couple's wage tax by this factor.
The couple must submit a joint application to the tax office to opt for 4/4 with a factor tax class combination. They must specify their anticipated wages for the calendar year in their application.
The factor method is valid for two years only. Hence, you must apply again if you want to continue using it.
Filing a tax return is compulsory under the factor method.
Receive more parental allowance and other social security benefits by picking suitable tax classes.
The tax office uses the net salary to determine the parental allowance. They consider the past twelve months' wage from the first month of maternity leave to calculate parental allowance.
Hence, your tax class in the past twelve months play a vital role in parental allowance calculation.
So, if you were in the tax class III, your net income would be high. Hence leading to a higher parental allowance.
On the other hand, your parental allowance will be low if you were in tax class V.
Thus, if you plan to have a child, the parent taking the most parental leave should choose tax class III early.
NOTE: You must request to change tax class at least seven months before starting maternity leave. It means you should act immediately as soon as the pregnancy is confirmed.
Moreover, the tax office uses your net income to calculate other social benefits like maternity allowance, unemployment benefits, short-term work (Kurzarbeit in German), insolvency benefits, or bridging allowance.
Thus, for example, you are in tax class V and may soon face unemployment. Then, you should consider switching to tax class III as soon as possible.
The reason is that higher income will result in larger benefits.
NOTE: Different social security benefits have different deadlines for changing tax classes. Hence, you must act as early as possible.
German tax classes (Steuerklassen in German)
There are seven different tax classes in Germany. Your payroll tax deduction depends on your tax class.
Tax class I (Steuerklasse 1 in German)
Tax class 1 applies to the following people.
Single
Divorced employees
Widowed employees - but only from the second year after the spouse's death.
A non-german employee whose spouse lives outside the EU.
An employee is subject to limited income tax liability because they earn income in Germany but live abroad permanently.
You pay no tax if you earn less than 10,908€ per annum (as of 2023) and 11,604 € (as of 2024).
Tax class II (Steuerklasse 2 in German)
All individuals listed in tax class 1 can opt for tax class II, provided they are single parents.
The prerequisite is that at least one child lives in your household for whom you receive a child allowance or child benefit.
The tax office does not assign you the tax class II automatically. Instead, you have to apply for it.
Under this tax category, the single parent who lives with their child receives a relief amount (Entlastungsbetrag in German). The idea of the relief amount is to reduce the cost burden on single parents.
However, you must fulfill the following conditions to receive the relief amount.
Your child must be registered with the same household address as yours at the local municipal office (Rathaus in German).
You don't live in a marriage-like relationship or a registered partnership.
Tax class III (Steuerklasse 3 in German)
Tax class 3 applies to married employees and registered civil partners. But, you must fulfill the following conditions to be eligible for this tax class.
You and your partner both live in Germany.
You do not live in different households permanently.
Your spouse does not earn, or they are in tax bracket 5.
Tax Class 3 makes sense in cases where one spouse's income is significantly higher than that of the other. To be precise when one partner earns up to 60% of the family income.
But we recommend you play with different tax class combinations and check the total net family income using the government's tax calculator.
Widowed employees also come under tax class III up to the end of the first year after the death of their spouse. But again, you must satisfy two prerequisites to opt for tax class 3.
You didn't live permanently apart from your deceased spouse.
The deceased spouse was subject to unlimited income tax liability in Germany.
Tax class IV (Steuerklasse 4 in German)
The tax office automatically assigns the newly married couples tax class IV irrespective of whether they both work or not. To be eligible for tax class IV, you and your spouse must live in Germany and not live in different households all the time.
The tax deduction is similar to that in tax class 1. Thus, tax class 4 makes sense if both partners earn almost the same income.
If one partner earns significantly more than the other, then changing to tax class combination 3/5 should be considered.
Tax class IV with factor (Steuerklasse 4 mit Faktor in German)
The option to select the tax class combination 4/4 with a factor has been available since 2010. The factoring technique ensures a fair distribution of the salary tax burden within a marriage or registered civil partnership.
However, filing an annual tax declaration is compulsory if you opt for tax class IV with factor. Moreover, you must apply to stay in this tax class combination every two years.
Tax class V (Steuerklasse 5 in German)
If one spouse (the one with the higher income) requests to go to tax bracket 3, the other spouse gets the tax class 5.
In tax class 5, the tax office doesn't consider any tax allowances. As a result, the spouse under tax class V ends up paying more tax.
Tax class VI (Steuerklasse 6 in German)
Employees who start a second or third job automatically end up in tax class VI. In tax class VI, one pays the most tax as the tax office considers no tax-free allowance.
But there is a silver lining. You can decide which of your jobs tax class 6 should be applied.
What is the basic tax-free amount in Germany in 2024?
The basic tax-free allowance ensures that the minimum subsistence level remains tax-free for everyone.
For employees
In 2023, the German government increased the basic tax-free amount by 561€ to 10,908€. Moreover, the government increased it further to 11,604€ in 2024.
For single parents
As discussed earlier, single parents receive a relief amount (Entlastungsbetrag in German) to reduce the tax burden.
The German government increased this relief amount by 252€ to 4,260€ as of January 1, 2023.
Thus, the total tax allowances for single parents is the basic allowance plus the relief amount, i.e., 10,908€ + 4,260€ (as of 2023) or 11,604 € + 4,260 € (as of 2024).
What are the income tax rates in Germany?
Germany has progressive tax rates that range from 14% to 45%, depending on your earnings. Here are the tax rates as of 2023.
Taxable income range for singles (EUR) | Taxable income range for married couples (EUR) | Tax rate |
|---|---|---|
0 - 10,900 | 0 - 21,800 | 0% |
11,000 - 27,500 | 22,000 - 55,000 | 0% - 14% |
27,600 - 62,000 | 55,200 - 124,000 | 15% - 42% |
62,000 - 277,825 | 124,000 - 555,650 | 42% |
>277,825 | >555,650 | 45% |
How does separation or divorce affect ex-partners' tax classes and annual income tax?
As soon as a couple splits and starts living separately, the tax office assigns them tax class 1. However, both partners can keep their existing tax classes until the end of the year they are separated.
It doesn't matter on what day in the year you split from your partner. Whether on January 1 or December 31, you will get tax class 1 from January 1 of the following year.
But you can opt for tax class 2 if your child (minor) lives with you in the same household and is also registered at the local municipal office (Rathaus in German) with the same address.
File annual income tax returns together for the year of separation.
You can file your tax assessment for the year of separation together with your ex-partner. But you must compensate your ex-partner for the resulting tax disadvantage.
However, you compensate only from the time of the separation.
For example, a married couple separated on December 30, 2021. Until December 30, the husband was in tax class 3, and his wife was in tax class 5.
The wife files for an individual assessment of her 2021 income tax. However, her ex-husband requests a joint tax evaluation.
In this situation, as per German law, the wife has no choice but to agree to her ex-husband's request. In return, her ex-husband will reimburse her for her tax disadvantage.
For example, the wife was to receive a tax refund in the case of individual assessment. However, no to very less tax refund in the case of joint assessment. Then, the husband must pay his ex-wife the difference.
As a rule, however, the husband or the one with tax class III still benefits from the joint income tax assessment.
But unfortunately, the ex-couples are so at odds with each other that they prefer filing separate tax assessments (individual assessments) over joint tax assessments.
In the case of more considerable income differences between the ex-partners, this can be an unnecessary gift to the tax authorities.
How does reconciliation affect couples' tax classes and yearly tax returns?
The tax office no longer considers a couple permanently separated as soon as the couple informs the tax office that they are giving their relationship another chance and are trying to live together again.
As a result, you can file your annual tax declaration together.
Moreover, you can make multiple attempts at reconciliation and saving your marriage. Hence, you can change your tax classes and how you file your income tax multiple times.
The only thing you need to do is to inform your local tax office on time.
But if the marriage ends in divorce, the tax office will treat the taxes of the spouses individually.
Things can be complicated if the couple was expecting tax refunds when they divorced each other for two reasons.
Unfair tax refund distribution among couples.
When you file an annual tax return together, you give one of the couples' bank accounts to receive all the tax refunds. Hence, in case of divorce, the tax office must know the bank account details of both partners. Only then can the tax office transfer the tax refund to both partners based on the tax each paid during the year.
Frequently asked questions about taxes in Germany.
How do I find the tax class assigned to me in Germany?
You can find the tax class assigned to you on your salary slip. If you think the tax class assigned to you is incorrect, you can change it by submitting a tax class change application to your local tax office or online on Elster.
What are the income tax rates in Germany?
Germany has progressive tax rates that range from 14% to 45%, depending on your earnings. You can read more about it here.
What tax category are students in Germany?
The German tax system is a progressive tax system. It means the tax office assigns you a tax class based on your income, not your professional status.
Hence, irrespective of whether you are a student or an employee, you have to pay tax if you earn more than 10,908€ per annum (as of 2023) or 11,604 € (as of 2024).
Do students pay taxes in Germany?
Yes, students must pay tax if they earn more than the basic tax-free amount, i.e., 10,908€ per annum as of 2023 or 11,604 € as of 2024.
Does getting married in Germany help save taxes?
Yes, married couples usually pay less tax than singles. The savings are even more if one of the partners earns significantly more than the other.
In this case, the lower-income partner usually takes tax class V, and the other opts for tax class 3.