Requirements for choosing your assessment type
According to §26 Paragraph 1 Sentence 1 of the Income Tax Act (EStG), married couples can choose whether they’d like to submit a tax return together (Zusammenveranlagung) or file individually (Einzelveranlagung) as long as they meet the following requirements:
- Both spouses are subject to unlimited tax liability
- They are not permanently separated
Everyone whose domicile or habitual residence is located in Germany is subject to unlimited tax liability (§1 EStG). According to §1 Paragraph 3 of the Income Tax Law (EStG), non-residents of Germany can apply for unlimited tax liability if at least 90% of their income is subject to German income tax or if their foreign income doesn’t exceed the basic tax-free amount, which totals to 9,744 euros in 2021 (§32a Paragraph 1 Nr 1 EStG).
If you and your spouse aren’t registered to the same address, this doesn’t necessarily mean that you are permanently separated. In 2017, Münster’s Fiscal Court ruled that spouses don’t necessarily have to live together to file a joint tax return. For example, if couples don’t live together due to professional reasons (double household) or health reasons (if one spouse is in a nursing home), this is not legally considered being permanently separated for tax purposes. Permanent separation means that you and your spouse no longer have a marital cohabitation (spatial, personal, spiritual companionship) or shared economic togetherness (shared handling of economic duties). This is considered permanent as soon as the following year if there are no attempts at reconciliation.
Note: Married couples can submit a joint tax return in the year that they file a divorce (Trennungsjahr), before the divorce becomes final. After that, it is no longer possible. To change to tax class 1 or 2 (for single parents), the tax office (Finanzamt) must be notified of your separation/divorce.
To choose your tax assessment type with your spouse, you must meet the requirements at least one day out of the year. Even if you were married on December 31st, you qualify for joint assessment (for the tax year in question).
Civil Unions & Same-sex marriages
Between 2001 and 2017, same-sex couples could register their civil partnership and since 2017, it has been possible for same-sex couples to marry and for civil partners to convert their union into a marriage. In 2013, the Federal Constitutional Court ruled that registered civil partners (retroactively to 2001) are entitled to the same tax benefits that come from marriage such as joint assessment, changing tax classes, and doubling savers’ and special expenses allowances. Civil partners could also choose to be assessed together retroactively for tax cases that were still open.
A legal amendment to the Annual Tax Act of 2018 made it possible for civil partners who had converted to marriage by the end of 2019 to apply for retroactive joint assessments dating back to the beginning of their civil union – even if the assessment was already completed. The application must have been received by the end of 2020.
How joint tax assessment works
Unlike individual assessment, joint assessment requires consent from both spouses (§26 Paragraph 2 Sentence 2 EStG) and both of you must sign your joint tax return. Simply check off the appropriate box on the cover page of your joint tax return or enclose an informal application.
Note: If you and your spouse don’t indicate your preferred assessment type, the tax office will automatically carry out a joint assessment.
Married couples who are assessed together are treated as a single person: they file a joint tax return and receive a joint tax assessment notice (Steuerbescheid) accordingly. If they receive a tax refund, it is transferred into only one bank account and is not split up between two. If they owe tax, both spouses are liable.
The tax office (Finanzamt) initially calculates both you and your spouse’s income (from wages, renting and leasing, capital gains, etc) separately and deducts your individual income-related expenses (Werbungskosten) and any allowances (such as the old-age relief amount). Afterwards, your incomes are combined and additional costs such as special expenses (Sonderausgaben) and extraordinary expenses (außergewöhnliche Belastungen) are deducted from the combined amount, regardless of which spouse took on these costs. The final total is your joint taxable income on which your income tax will be calculated.
Once your joint taxable income is determined, tax reductions (Steuerermäßigungen) for household-related services (haushaltsnahe Dienstleistungen) and tradespeople costs (Handwerkerkosten) are deducted directly from your calculated tax liability.
As long as one of you meets the requirements for allowances (Freibeträge) or lump sums (Pauschbeträge), they will be observed on your joint tax return. Some lump sums/allowances such as the special expenses lump sum (Sonderausgaben-Pauschbetrag) and the savers’ allowance (Sparer-Pauschbetrag) are doubled for married couples being assessed together (as of 2021: 801 euros per person or 1,602 for married couples). This also means that if one spouse doesn’t fully exhaust the lump sum, the other spouse can deduct it.
Joint assessment typically leads to tax advantages due to a type of calculation on your taxable income called income splitting (Ehegattensplitting).
How does income splitting lead to tax savings?
All taxpayers are taxed according to the basic tax rate (Grundtarif, §32a Paragraph 1 EStG), for married couples, this is referred to as the splitting rate which is a derivation from the basic tax rate (Splittingtarif). The splitting rate refers to the process of income splitting for married couples (§32a Paragraph 5 EStG), which divides their shared calculated taxable income in half as if they had each earned the same exact amount. Their income tax due is calculated based on half of their taxable income and then doubled, yielding their tax liability.
If one spouse has high income, this is especially beneficial as income splitting leads to part of the income being shifted onto their spouse – as tax liability is calculated from half of the joint taxable income, it leads to a lower tax rate than if the spouse with high income had calculated their tax rate individually. Those who earn similar amounts will not receive any special advantages from filing a joint tax return – the outcome is more or less the same as an individual assessment.
It’s also worth keeping in mind that those who file individually can only claim their own basic tax-free allowance, while for those who file with their spouses this tax-free allowance is doubled (as of 2021: 19,488 euros).
Tip: There are also times when it is more beneficial for spouses to file individual tax returns, for example if one spouse receives a severance package (Abfindung) or receives short-term work benefits (Kurzarbeitergeld). You can read more about this in our article about individual assessments for married couples (Einzelveranlagung).
Types of assessment for married couples
In 2013, the Tax Simplification Act of 2011 took effect and reduced assessment options for married couples. Now, they can choose between:
- Joint assessment (Zusammenveranlagung) with income splitting (§26b EStG)
- Individual assessment (Einzelveranlagung) with the basic tax rate (§26a EStG)
Divorced and widowed persons are assessed individually just as single persons. There are two exceptions that allow them to file a joint tax return:
- According to §32a Paragraph 6 No. 2 of the Income Tax Act, divorced persons are entitled to individual assessment with special income splitting (Einzelveranlagung mit Sonder-Splitting) for the same year of their divorce if their ex-spouse remarries in the same year. In addition, the ex-spouse must meet the requirements for joint assessment for both the dissolved marriage and the new marriage.
- Widowed persons are entitled to individual assessment with widow(er) income splitting (§32a Paragraph 6 Sentence 1 No. 2 EStG) in the year following their spouse’s death.
The Tax Simplification Act eliminated, among other things, “special assessment” and “separate assessment.” Special assessment allowed newlyweds to be assessed as if they were still single for their first year of marriage. The introduction of individual assessment for spouses made special assessment superfluous and unnecessary, thus, it was abolished.
Separate assessment was also replaced by individual assessment for married couples. Although the terms are often used interchangeably, there are differences between the two in tax law. Separate assessment allowed spouses to divvy up their special expenses, extraordinary expenses, and household-related expenses among themselves as they saw fit. This is no longer possible with individual assessment: each spouse can only deduct the expenses that they themselves paid.
Tax tip: Spouses that are assessed individually can still apply to divide these expenses equally among each other.
Changing your assessment type
Each year, spouses are permitted to choose how they’d like to be assessed. This decision only applies to the tax year in question and is generally binding upon tax return submission.
If you and your spouse wish to change your assessment type after submission, this can only be done until you receive your final tax assessment notice (Steuerbescheid). The assessment usually becomes final one month after you receive it if you haven’t filed an appeal against it.
You can only change your assessment type after your tax assessment notice becomes final if you meet strict requirements:
- A tax assessment notice that affects either you and/or your spouse is changed, corrected, or cancelled.
- You must inform the tax office (Finanzamt) that you wish to change your assessment type before the change/correction becomes final.
- A different tax assessment type must provide you with lower joint income tax.
It’s much better to check in advance which assessment type is more beneficial to you and your spouse. This is made easy with wundertax: