Individual Tax Returns for Married Couples
How does it work when married couples wish to be individually tax assessed? When is it beneficial? We'll fill you in here.
Choosing the Right Assessment Type for You and Your Partner
Spouses and civil partners that are subject to unlimited tax liability and who are not permanently separated can choose each year whether they’d like to submit an individual or shared tax return (§26 Paragraph 1 Sentence 1 of the Income Tax Act) by simply checking off the appropriate box on the cover page of it. If married couples do not specify their desired assessment type on their tax return, the tax office (Finanzamt) automatically processes a joint assessment.
When is it better to be assessed individually (Einzelveranlagung) or submit a tax return together with your spouse (Zusammenveranlagung)? Find out in this article.
Note: All of the following information applies to both married couples and registered civil partnerships. 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.
Assessment types for married couples
The 2011 Tax Simplification Act (Steuervereinfachungsgesetz) reduced the possible assessment types for married couples from 7 to 4 and took effect in the 2013 assessment period. Married couples have the following options:
- Individual assessment (Einzelveranlagung) with a basic tax rate (§26a EStG)
- Joint assessment (Zusammenveranlagung) with income splitting (§26b EStG)
Divorced and widowed persons are assessed individually. There are two exceptions that allow them to still benefit from income splitting:
- Individual assessment with special splitting (§32a Paragraph 6 No.2 EStG): If your ex-spouse remarries in the same year that the divorce took place, you can claim the splitting procedure if your ex-spouse meets the requirements for both the ended and new marriage.
- Individual assessment with widowed splitting (§32a Paragrapj 6 No.1 EStG): The splitting process is applied to the income of the surviving spouse in the year following their spouse’s death.
Assessment types that were removed in the 2011 simplification act included a ‘separate assessment’ which allowed spouses to divvy up their special expenses (Sonderausgaben), extraordinary expenses (außergewöhnliche Belastungen), and household-related expenses (haushaltsnahe Aufwendungen) however they wished to be most beneficial for them. This was replaced by “individual assessment for spouses,” however, it is different as spouses can no longer divide their expenses however they wish.
How individual assessment works when you’re married
According to §26 Paragraph 2 Sentences 1-3 of the Income Tax Act (EStG), both partners must agree to being assessed together for tax purposes. On the other hand, a spouse who wishes to be assessed individually can choose this alone. There is a catch – if one spouse files their tax return and chooses to be assessed individually, then the other must do the same, even if they were not previously required to file.
Income and expenses
When spouses file individual tax returns, they claim the income they’ve earned themselves and receive an individual tax assessment notice (Steuerbescheid). Income earned together is generally split down the middle unless a different arrangement was made with the tax authorities.
Unlike the past ‘separate assessment’ that was discontinued in 2013, expenses are typically claimed on the tax return of the spouse that paid for them. This applies to many types of expenses including:
- Special expenses (Sonderausgaben)
- Extraordinary expenses (außergewöhnliche Belastungen)
- Tax reductions for household-related services (haushaltsnahe Dienstleistungen), tradespeople services, and energy-efficient construction work on owner-occupied property
Expenses can be split in half upon application
The tax office will split the pair’s expenses equally if it is applied for. In certain situations, it is sufficient for the person who paid for the costs to provide the application individually.
In 2017, the Federal Fiscal Court (Bundesfinanzhof) ruled that it is also possible to split the disability lump sum (Behinderten-Pauschbetrag) between partners. Prior to this ruling, solely expenses could be spilt.
In another ruling in 2019, the Federal Fiscal Court confirmed the Baden-Württemberg Fiscal Court’s 2017 decision to split provident expenses (Vorsorgeaufwendungen) and its maximum limits in half. Initially, the tax office determined the plaintiff’s and their spouse’s deductible special expenses (Sonderausgaben) individually, then added them together and split them in half. In this calculation, the plaintiff’s spouse had not exceeded his maximum limit, while the plaintiff’s special expenses, which had exceeded maximum limit, were not considered. The tax court (Finanzgericht) calculated this a bit differently: They first divided their total spent special expenses and then calculated the maximum deductible amounts. The tax savings in the case amounted to 1,576 euros.
Extraordinary expenses (außergewöhnliche Belastungen)
Extraordinary expenses can be claimed on your tax return if they exceed the “reasonable burden” (zumutbare Belastung) for those with similar income, marital status, etc. This amount is calculated based on you and your spouse’s individual incomes. Prior to 2013, this amount depended on you and your spouse’s total income lumped together.
Joint assessment & income splitting
Spouses who choose to be assessed together (§26b EStG) are treated as one person for tax purposes: they file a single tax return and receive a single tax assessment notice (Steuerbescheid). Income and deductible expenses from both spouses are considered, regardless of who earned/paid them, when the tax office is calculating their joint taxable income and liability.
If one spouse earns more than the other, it is typically more beneficial to file a joint tax return due to income splitting. Although all taxpayers are subject to the basic rate (Grundtarif, §32a Paragraph 1 EStG), income is determined differently for a joint assessment. Income splitting means that the taxable income for both spouses if determined and then halved – as if both partners had each earned half of the income. The income tax due on the half is then doubled, yielding their tax liability.
Splitting high income between spouses can benefit them by leading to a lower tax rate (Steuersatz) due to it being determined on half of the income. This can lead to huge tax savings for spouses with different income levels. If both earn around the same amount, individual and joint assessments will lead to the same result.
Note: You can find more information on this topic in our article about joint assessment.
When is an individual assessment more beneficial?
Although income splitting is typically more advantageous for married couples, there are certain situations where individual taxation would ensure a lower tax burden. If you are unsure, you can calculate both types free of charge by using our tax tool!
There are various cases where you should consider being assessed individually, including:
If you’ve received wage replacement benefits (Lohnersatzleistungen) such as short-term work benefits (Kurzarbeitergeld) or parental allowance (Elterngeld), it can lead to an increased tax rate and tax burden due to the Progressionsvorbehalt. Although the benefits themselves are tax-free, the amount is added to your taxable income on which your tax rate is calculated. The tax rate is then applied to your taxable income without the benefits. This also applies to foreign income that is subject to the Progressionsvorbehalt. If you are assessed together with your spouse, this can affect your spouse’s income as well; therefore, individual assessment is often more beneficial in this case.
Tip: You can increase wage replacement benefits by changing the spouse receiving them to tax class III.
Employee savings bonus (Arbeitnehmer-Sparzulage)
If you are required to remain within certain income limits to receive certain government subsidies such as the employee savings bonus, it may be more sensible to be assessed individually.
Provident expenses (Vorsorgeaufwendungen)
Freelancers can deduct more additional provident expenses than traditional employees (2,800 euros versus 1,900). If either you or your spouse is a freelancer while the other is traditionally employed, individual assessment can be more beneficial. Otherwise, the provident expenses of the traditionally employed spouse would be included in the calculation for the freelancer, thus leading to a reduction in their deductible special expenses.
Extraordinary expenses (außergewöhnliche Belastungen)
If one spouse has higher medical expenses (Krankheitskosten), the “reasonable burden limit” (zumutbare Belastungsgrenze) can be exceeded more easily in an individual assessment, leading to more deductible expenses.
Severance packages (Abfindungen)
If you received a severance package or other extraordinary income, it is recommended that you’re assessed individually so that your spouse’s income doesn’t influence tax reductions received through the one-fifth method (Fünftelregelung). The higher the taxable income, the lower the tax savings from the one-fifth method.
Loss carryforward (Verlustvortrag)
If you wish to claim negative income on your tax return, an individual assessment helps prevent the losses from being offset against your spouse’s income. The loss carryforward then still applies in subsequent years.
Church tax (Kirchensteuer)
A special church tax is levied from couples of different faiths or if one spouse is non-religious or belongs to a church that doesn’t require church tax. This can be avoided through individual assessment.
Relief amount for single parents
Single parents who have recently married (or re-married) can still claim their relief amount on a pro rata basis for the months leading up to the marriage if they are assessed individually. Since 2020, this relief amount totals to 4,008 per year. The Federal Fiscal Court (Bundesfinanzhof) has not yet decided if the relief amount can be claimed for the year of separation.
Tip: If necessary, file an objection with the tax office and refer to the pending proceedings (Az.: III R 17/20).
Employees can receive up to 410 euros per year in income that is not subject to wage tax (for example rental income or income from self-employed lecturing). If spouses are assessed together, the additional income from both partners is added together but not the exemption limits; therefore, individual assessment can be worthwhile for those with additional income.
What does “permanently separated” mean for your taxes?
For married couples to choose their preferred assessment type, they must meet two requirements: they must both be subject to unlimited tax liability in Germany, and they must not live permanently separated. Meeting these requirements at least one day out of the year is sufficient.
What constitutes being “permanently separated”? The tax authorities label this as the dissolution of marital cohabitation and economic togetherness. Marital cohabitation includes spatial, personal, and spiritual companionship, while economic togetherness means spouses handling their common economic duties together.
Living separately, for example for professional reasons (such as a double household or work duties abroad), doesn’t necessarily mean a couple is permanently separated. Couples in such situations can still decide whether they wish to be assessed individually or together. This also applies to couples living separately due to hospital stays, prison, or if one lives in a nursing home.
When is the deadline to change your chosen assessment type?
You and your spouse’s choices for your assessment type on your tax return(s) are binding for the tax year in question. It is possible to request a change in assessment time until the tax assessment notice (Steuerbeschied) for the same tax year becomes final (§26 Paragraph 2 Sentence 4 EStG). A tax assessment notice is formally considered final a month after you’ve received it, after the allowed period to file an appeal passes. The tax office (Finanzamt) will only change your assessment type if it leads to a tax benefit for you.
Check your potential savings from individual or joint assessment now using our tax tool!