4 Min.

When is it the right time to change tax classes? (Steuerklassenwechsel)

Looking into it will bring some insights for you.

Is there a way one can get money today without doing anything about it? The revolution of saving money in bank accounts has been deemed obsolete in the 21st century. They are viewed as a thing of the past. There are better ways in today’s world to make your money work for you. Investing in shares and stocks is one of these new ways. The world of the share of course like any other have their side of risks and most people without clear insight end up being afraid of investing in this side.

Living in a country like Germany will mean that you get high taxes imposed to you if you are a citizen. By doing this they are able to recover a few hundred euros after the tax return. Changing your tax class (Steuerklasse) will mean that you gain a windfall. It is a way that has worked for many people and is encouraging even more to try. Looking into it in more detail will bring some worthy insights for you.

What is the meaning of a tax class (Steuerklasse)?

In Germany, there are six tax classes. When you begin, you are assigned a payroll tax class (Lohnsteuerklasse) by the relevant tax office. These tax classes allow employers to have an easy time in say, calculating the employee’s payroll tax (Lohnsteuer).

It is pretty obvious that all citizens fall under different tax classes. The tax class you get finally depends on your current family status. People who are single are classified in Class 1; single parents, on the other hand, get Class 2 and so forth. People who fall under the marriage family status have some specials which we will look into more detail later on.

What are the impacts of changing your tax class?

Changing your tax class first and foremost will mean more cash in your pocket. You won’t necessarily get more money after you change rather; it means that you will have more money at your disposal to use as net monthly income is increased. The only drawback is that you can only change your tax class ones per year.

Class change for married couples

After marriage, both partners will automatically receive a tax class of 4. The tax category will determine the amount of the deductions from the monthly gross salary of each working spouse. The working spouses can choose between three combinations.

Here working spouses can choose between three combinations:

  • IV+IV: both spouses are on the same level and this combination can be maintained.
  • III+V: In the case where the spouses have varying salaries (from 60% to 40%) it may be worth changing to different tax classes. This will amount to a tax advantage for the spouses. The spouse with the higher salary chooses the class III and the one with the lower earnings the class V. The partner with the tax class III will receive a higher net salary. Those with lower incomes and class V end up paying higher taxes even though they already have lower incomes. This leads to injustices. Also, if there is a large pay gap at the end of the year, risk of high tax arrears arises.
  • IV+IV by factor: in this combination, both partners pay only as much tax as they contribute to the common income. This removes the disadvantages of the combination of III+V.

Freshly married couples may also be able to receive their overpaid taxes. If one of the partners has not exceeded their allowance before the wedding, an exemption order may be given, and the bank will then reimburse the excess payment (Abgeltungsteuer) directly.

Das hat es mit den Steuerklassen auf sich

Changing the tax class for unemployment benefit (Arbeitslosengeld)

If you know that in the near future you may depend on unemployment benefits, you can change your tax class if you are married. It is particularly advantageous to the former better-earned who should now choose the tax category V. If government services have been received, it is not possible to switch to another tax category, as the employment agency rejects these requests.

Tax classes for single and single parents

Single people cannot change their tax class unless the circumstances change for example they get a spouse or child. In principle, they are classified in the fiscal class I. Also, in the tax category I, no relief (Entlastungsbetrag) may be claimed for single parents. But they can move to tax category II. The amount of the allowances changes here and the tax burden is reduced. A single parent employee is entitled to claim an amount of the allowance. This is possible only if the single parent lives with the child in the same household. Single parent employees must assure the tax office that they can receive the amount of relief. If the circumstances change, it must be communicated to the tax office.