Swapping Tax Classes: Which is right for me?

What exactly is a tax class (Steuerklasse)?

In Germany, there are six tax classes. When you begin paying taxes, you are assigned a payroll tax class (Lohnsteuerklasse) by your local tax office which allows your employer to easily calculate your individual wage tax (Lohnsteuer).

Your individual tax class depends on your family status – tax classes 1 and 2 are assigned to singles and single parents respectively, while tax classes 3 to 5 are delegated to married couples. Tax class 6 is a special class meant for those with more than one job.

Changing your tax class first and foremost affects the amount of tax deducted from your salary, which, in turn, affects how much you take home. It is important to note that a tax class change is only possibly once per year.

Tax class change for married couples

After a couple is married, both partners are automatically assigned tax class 4. The tax category will determine the amount of the deductions from the monthly gross salary of each working spouse. Married couples can choose between three possible tax class combinations:

• Tax classes IV + IV: For spouses with similar income.
• Tax classes III + V: For spouses with varying salaries (for example 60%/40% of total household income) it could be worth switching to this combination. The partner with tax class III receives higher total income and is taxed less, while the partner in tax class V has a lower salary but is taxed more. The person in tax class V would have a lower annual net income due to being taxed more, however, when combined with their partner in tax class III they yield a higher annual net income together (due to the partner with higher income being taxed less).
• Tax classes IV + IV with factor: In this combination, married couples with varying salaries can pay taxes based on what they contribute to the common income. This combination can be requested to avoid the disadvantages that come with tax classes III and V.

Freshly married couples may also be able to claim their overpaid taxes: If one partner didn’t exceed their allowances before being wed, they can request an exemption order and, if granted, the bank will reimburse the excess payment.

Changing tax classes for unemployment benefits (Arbeitslosengeld)

If you are married and will depend on unemployment benefits in the near future, it’s beneficial to change your tax class to tax class V. If you already began receiving government benefits, it is no longer possible to switch to another tax class as the employment agency rejects such requests.

Tax classes for singles and single parents

Singles are always tax class I and cannot switch tax classes unless they get married or have a child. Single parents can, however, swap to tax class II in order to receive tax reliefs which increase the amount of allowances they can receive and reduce their tax burden. This is only possible if the single parent and child(ren) live together in the same household.