The tax class dictates your income tax. In Germany, there are seven different tax classes. Don’t know which to choose? We'll tell you exactly what they are and what they mean.
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What the tax class depends on
The tax office assigns every employee a tax class. The tax bracket depends primarily on your marital status: single, single parent or married.
Single parents and married couples or registered civil partnerships can apply for a change to different tax class.
01.
Tax Class 1: Singles
Tax class 1 applies to all unmarried, widowed, divorced, or permanently separated employees. This is the standard tax bracket.
tax year | basic free allowance |
|---|---|
2019 | € 9,168 |
2020 | € 9,408 |
2021 | € 9,744 |
2022 | € 10,347 |
2023 | € 10,908 |
2024 | € 11,604 |
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02.
Tax Class 2: Single Parents
This tax class is intended for single employees with children, who receive the tax credit for single parents (Entlastungsbetrag für Alleinerziehende). You need to apply for the change to Tax Class 2 since this is not an automatic process.
Due to the corona pandemic, the relief amount has been increased to 4,008 Euros. In the Annual Tax Act 2020, this increase is set for an unlimited period of time, which means that it is permanently valid from the 2020 assessment period.
03.
Tax Class 3: Married Couples in Combination With Tax Class 5
Tax class 3 can be applied for by a spouse who has a much higher family income. This means that his income is less taxed. The other partner is assigned tax class 5 by default.
04.
Tax Class 4: Married Couples With the Same Salary
Tax class 4 applies to married people if both spouses earn a salary, live in Germany, and are not separated. All newly married couples have tax class 4 by default. It is tax-favourable if the spouses have approximately the same income and are taxed individually (Ehegattensplitting) instead of jointly.
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Tax Class 4 With Factor
In many cases, tax class 4 with a factor implies that no taxes need to be paid. The tax office calculates the tax year’s expected tax liability and automatically withholds the income tax every month. This means that the ‘splitting advantage’ is used during the year.
06.
Tax Class 5: Married Couples in Combination With Tax Class 3
A married person is assigned tax class 5 a spouse if the other spouse (who has a higher income) changes to tax class 3 upon request. The lower-income spouse in tax class 5 is then taxed higher. Nevertheless, the 3/5 combination is worthwhile for couples with a wide difference in income.
The person in the tax class 5 doesn't have a Grundfreibetrag anymore and is mandatory to file the tax return. The other person (class 3) has the double amount.
Change tax class for higher parental allowance!
Married couples expecting a child can use a trick to get a higher parental allowance. If both partners have tax class 4, they can switch to tax class combination 3/5. The partner with the lower deductions receives a higher parental allowance, as it is calculated based on the net income.
You must pick the right moment to change your tax class. When calculating the parental allowance, the tax office considers the income for which the same tax bracket predominantly applied twelve months before the birth. You must enter the tax class change must, therefore, seven months before the child is born.
You can later switch back to the old tax class. The overpaid taxes of the other spouse are finally recovered with the tax return.
Unemployment benefit is also calculated based on your net salary. If you face the threat of unemployment, you can use this tip for higher unemployment benefits.
07.
Tax class 6: Multiple jobs
Tax class 6 applies to employees who have other jobs in addition to their first job. It is associated with the highest deductions, as there are no tax exemptions. From the first part-time job onwards, income tax is withheld. The first employment relationship remains in tax class 1. For every employment additional to the one in tax class 1, there is no Grundfreibetrag anymore, and you will have to file a tax return.
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