TAX BRACKETS (Steuerklassen)
There are 6 tax brackets (Steuerklassen) in Germany. Your respective tax office will assign you a tax bracket. For example, an employer can calculate an employee’s income tax (Lohnsteuer) by means of the tax brackets.
As you may imagine, not every citizen is in the same tax bracket. The tax bracket (Steuerklassen) you end up in is dependent on your marital status. Singles are assigned to tax bracket 1, single parents tax bracket 2 etc. There are exceptions for married couples, which we will go into more detail about later.
Did you buy a laptop or a mobile phone?
Did you move last year for work?
Did you work less than 12 months last year?
Was your work commute more than 30 minutes?
Are you married with tax class III/V?
Did you pursue a further education?
Did you receive self-employment income?
You are required to file a tax return.
Filing your tax return is worth it! You will most likely get a very high tax refund.
You can expect a high tax refund.
TAX BRACKET 1 (Steuerklasse 1)
Generally applies: The amount an employee has to pay for income taxes (Lohnsteuer) is dependent on which tax bracket they are in. The least amount is paid in tax bracket 1. Those who are assigned to this group receive e.g. an employee flat rate of €1,000.
Currently, the tax exemption limit is €9,000.00 and is re-adjusted annually. There is also relief (Freibetrag) for singles and single-parents in tax bracket 1.
Those who earn more than €450 are assigned this tax bracket. In addition, those unmarried, divorced, widowed or are a separated married couple that are employed can also be found in this tax bracket.
TAX BRACKET 2 (Steuerklasse 2)
This tax bracket is similar to the first one. However, they are differentiated by the amount of the tax exemption limit (Freibetrag). Besides, the annual tax load (Steuerlast) is omitted.
Normally, employed single-parents are in this tax bracket. The requirement for this is the employee must earn more than €450/month as in tax bracket 1. However, you must apply for tax bracket 2, because it is not automatically assigned.
But who does it apply to? An employed single-parent must be approved in order to be able to apply for this amount of relief (Entlastungsbetrag) on their taxes. This is only possible if the single-parent lives in the same house as the child(ren). There cannot be a common law partnership or other marriage-like status. In addition, it is not possible to pay for a household with another person. In cases like this, tax bracket 2 is then not assigned.
Employed single parents have to ensure the tax office that they are able to apply the relief exemption. Should your living situation change, the tax office must be informed as well.
TAX BRACKET 3 (Steuerklasse 3)
Tax bracket 3 is only intended for married people. It can only then be used by a spouse if the other spouse uses tax bracket 5. Tax bracket 3 has the lowest tax rate. Besides, all exemptions (Freibeträge) can be used for both spouses, whereas the spouse in tax bracket 5 will not profit from any exemption. The purpose of this is to show that they are part of an income “union” (Einkommensgemeinschaft). So, from now on, both are taxed together.
Double exemptions (doppelter Grundfreibetrag) apply for tax bracket 3. In addition, the tax burden is reduced for a tax bracket combination (Steuerklassen-Kombination) of 3 and 5 and the net income is increased.
Tax bracket 3 can only be selected by an employed spouse that earns more than €450/month.
TAX BRACKET 4 (Steuerklasse 4)
This tax bracket also only pertains to those who are married. It is the alternative to tax bracket combination (Steuerklassen-Kombination) 3 and 5.
A so-called work-factor method (Faktorverfahren) comes into play with this tax bracket, which was implemented in 2010. This was implemented in order to avoid disadvantages for other combinations. Unfortunately, women are still paid much worse than men even nowadays. Therefore, women normally have to pay more taxes than their husbands in the 3 and 5. tax bracket combination. The 4-4 rule prevents this phenomenon. This tax burden, even in this variation, is determined by means of a income tax adjustment (Lohnsteuerausgleich). The work-factor method makes it possible for an approximation of the net income available per month.
Additional payments should be excluded with this variation. Married couples seem to have to pay taxes later more often with the 3-5 variation. Tax bracket 4 can only be selected by married people if both earn at least €450/month. In addition, this is only possible if both spouses would like to be in the same tax bracket.
TAX BRACKET 5 (Steuerklasse 5)
Tax bracket 5 is the opposite of tax bracket 3 and can only be used in combination with each other. In addition, this combination is only for married couples as well. The requirement for this is that one spouse uses 3 and the other spouse uses 5.
Generally, one can say that this class is the most disadvantageous of all the tax brackets. At least if you look at it as isolated. There aren’t any exemptions (Grundfreibeträge), including those for children (Kinderfreibeträge).
Advantages start appearing if tax brackets 3 and 5 are combined. Exemptions from tax bracket 5 are transferred to tax bracket 3. Under certain circumstances, the tax burden is thus minimized and the net income is increased.
According to this, tax bracket 5 should selected from the spouse that earns the least. At least one spouse has to earn a minimum of €450/month.
TAX BRACKET 6 (Steuerklasse 6)
Tax bracket 6 is a special bracket. This bracket differentiates itself from every point in the other brackets. It is allocated by the tax office if the employee has a second or more additional jobs.
That means the employee can “own” two tax brackets. So, tax bracket 6 is used for any jobs that are in addition to the main job. Taxes are paid here from the first Euro and any exemptions (Freibeträge) do not have any advantage. In the end, the employee decides for themselves which tax bracket is for which employer. It makes sense to use tax bracket 6 for the job that pays the lowest.
Generally, tax bracket 6 is for side jobs and additional employment from employers.