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German Tax bracket overview – these are the differences

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If you work in Germany, you have to pay a wage tax. The amount depends on the tax bracket . Read below to find out what is available and what is behind it.

To understand finances in Germany, you have to understand taxex. The tax office in Germany (Fianzamt) assigns a wage tax bracket, or just called tax class , to each employee . There are a total of six tax brackets in Germany. They help the employer calculate an employee’s wage tax.

Which tax bracket applies to whom?

The tax bracket is primarily based on marital status. The tax office automatically assigns single persons to tax class I (1) and single parents to tax class II (2) (where they receive a higher tax relief). Anyone who has several jobs that are subject to social security contributions is automatically assigned tax class VI (6) from the second job onwards.

tax bracket

In German,there are 6 tax brackets. The tax bracket overview assigns the levels according to marital status, combination of options and employment relationships. In doing so, the tax office takes into account different burdens that exist depending on the family circumstances and care obligations.

There is a special tax bracket for married couples: You can choose between different tax classes. Below is a tax bracket table (as of 2020) which shows you who the state divides into which tax class:

Tax classFamily status
I (1)a) Single persons (single, divorced, widowed)
b) Married / registered partners
(if you live permanently separated from your spouse)
II (2)Single parents (from the 1st child)
III (3)a) Widowed (in the year of death + subsequent year)
b) Married / registered life partners
(if partner has chosen tax class V, or the partner does not work or earn less)
IV (4)Married / registered life partners
(if the partner also chooses tax class IV)
V (5)Married / registered life partners
(if the partner chooses tax class III)
VI (6)Single and married / registered life partners
(from the second job, if you have several jobs and accordingly have to present several income tax cards or if you do not present the income tax card although you have to)
tax bracket

10 tips for choosing the best tax bracket

1. Understanding tax brackets in Germany

Every employee is assigned to a specific tax bracket for the purpose of collecting income tax. The amount of tax to be paid depends on family status, number of children, type of income and the applicable tax exemptions.

The tax bracket decides how much wage tax, solidarity contribution and possibly church tax are to be paid monthly from the gross wage. On the basis of the annual tax return, the tax office determines whether sufficient, too much or too little taxes have been paid.

Single persons are automatically assigned to tax class 1 by the tax office or receive tax class 2 if you have at least one child to look after. Only married couples can choose between different tax brackets.

2. How do the individual tax brackets differ?

There are six different wage tax brackets in the German Income Tax Act:

  • Tax class 1: This includes all single people without children or married people who are permanently separated from their partner.
    Tax class 2: Single people with children (single parents) are assigned to this tax class. 
  • Tax class 3: For widowed taxpayers, married single earners or married people whose spouse has chosen tax class 5, tax class 3 applies.
  • Tax class 4: Married double earners can both choose tax class 4. This solution can be useful if both have about the same income.
    Tax class 5:This can be chosen by married people if their partner chooses tax class 3. This variant is particularly recommended if the spouses have different income levels. 
  • Tax class 6: It causes the highest tax burden, as no allowances can be claimed here. It applies to employees with a second or third job who are already using a different tax bracket for their first job.

3. When should spouses or partners change a tax bracket in Germany?

Spouses with equal earnings or registered partners are assigned to income tax class 4. However, if one partner earns significantly more than the other (around 60% of total income), the better-earning partner should be invested in tax class 3, while the partner with the lower income (at least 40%) changes to tax class 5. This results in a much higher net income. However, when combining tax classes 3/5, a tax return must be submitted at the end of the year, which is not necessary with the combination 4/4. In most cases, experience shows that an additional tax payment is required.

You can use the tax class calculator to calculate how the various tax class combinations would affect you. In this way, you can determine a tax class combination that minimizes tax back payments and refunds at the end of the year and thus achieve a sensible adjustment of your monthly income tax.

4. How can spouses and life partners change their tax class?

Only married couples and registered partnerships are allowed to choose their tax brackets. The spouse’s consent to a change is always required. The tax class can be changed at the responsible tax office. This requires the corresponding application form and, in the case of newlyweds, the family register.

5. What does the factor procedure for tax class 4 include?

Married or partnered couples with roughly the same monthly salary have been able to choose an “optional factor procedure” in combination with tax class 4 (Section 39f of the Income Tax Act) since the 2010 assessment period. This procedure offers the advantage of largely avoiding back tax payments.

The factor is calculated from the ratio of two amounts: the annual income tax liability, which would probably have to be paid by both partners according to the splitting procedure (Y), and the wage tax amount that would have to be paid in each case according to tax class 4 (X). If the result of dividing Y by X is less than 1, the factor method can be used.

tax bracket

6. When are you forced to change a tax class?

A change in the tax class becomes imperative if the family situation of an employee changes. This is the case in the event of marriage, separation or divorce, the death of a spouse or partner, or the birth of a child for a single person.

7. In which wage tax class will you be classified after a separation or divorce?

After a separation or divorce, the former partners are classified in tax class 1 or 2 and taxed in a comparable way to single persons. However, the change in tax class does not necessarily have to take place immediately after the separation; rather, a transitional phase is granted for the year of separation in which those concerned can remain in the previous tax bracket.

8. In which tax class do I have to submit an income tax return?

In principle, as an employee, you are not obliged to submit an income tax return if you are an unmarried employee in tax class 1. Likewise, married couples in which both partners are in tax class 4 are not required to submit an income tax return. Changing the tax class can significantly reduce the monthly tax burden, but in this case you are also obliged to submit an income tax return.

9. How often can you change tax brackets in Germany?

A tax class can generally be changed once during a calendar year. However, further changes are possible in exceptional cases, e.g. For example, the spouse or partner no longer receives any income from non-self-employed work – or vice versa, if (e.g. after unemployment or parental leave) this type of income is drawn again or if a spouse dies.

10. Will switching to a more favorable tax bracket lead to more income?

It is possible to receive a higher monthly net income by switching to another tax bracket. However, this additional income is largely leveled out with the annual income tax return.

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