The 6 Tax Classes in Germany: Which One is Yours?
Table of contents
Anyone living in Germany is obliged to pay taxes. As an employee, your Lohnsteuer (wage tax) is collected by the state from your employer. The corresponding amount is held from your salary by your employer and paid to the tax office.
The self-employed are not subject to the Lohnsteuer but instead the Einkommensteuer (income tax). If you’re self-employed, you’ll only need to pay this if your income exceeds the basic tax-free amount, after deducting pension and business expenses. The Einkommensteuer is relevant for you whether you run your own business or work as a freelancer.
This means that by and large the various tax classes in Germany aren’t of much use to you if you’re self employed. However, it’s still information worth knowing. Your self-employed status could change at some point, and there are a few other cases that could affect you. For instance, if your spouse is employed the Lohnsteuer still applies, and if you employ anyone into your business then it becomes relevant again.
Read on to find out more about tax classes and how you can change yours.
What Are Tax Classes?
Every employee in Germany is put into a Lohnsteuerklasse (tax class). Which class you’re in is determined by the amount of your salary as an employee. Which of the six tax classes you will be assigned to depends on a few factors:
- Marital status
- Number of children
- Respective tax allowances
You will also be assigned to a different tax class if you have multiple sources of income.
Which are the Different Tax Classes?
Tax classes are used to calculate your Lohnsteuer as a salaried employee or Einkommensteuer as a self-employed person. You will be assigned by your district’s tax office to one of these six classes:
- Tax Class I
- Tax Class II
- Tax Class III
- Tax Class IV
- Tax Class V
- Tax Class VI
- Overview of tax classes, conditions and allowances (table)
Tax Class I
The first tax class includes single and divorced employees, as well as anyone whose spouse lives abroad or lives permanently outside of Germany. The class also emcompasses widowed employees and anyone subject to a limited Einkommensteuer. As a member of this class you cannot claim the relief reserved for single parents or child allowances. Tax class I includes no deductions on wages or salaries up to €450 per month. When your earnings exceed this, the tax rate for this class is around 17%. How high the tax rate is precisely depends on your wage amount.
Tax Class II
If, as a single parent, you earn more than €450 per month, you will likely belong to tax class II. It’s important to note however that if this is your class, you will not be automatically assigned and must apply to be. The assumption for members of this tax class is that they will be entitled to then apply for an appropriate relief amount. To be eligible, you must live in the same household as your child.
Tax Class III
The third tax class is limited to married couples with both partners living in Germany. To belong to this tax class, one member of the marriage must be assigned to tax class V. Tax class III has the lowest taxation and double the allowance. The minimum monthly wage required to belong is again €450.
Tax Class IV
An alternative tax class for married couples who don’t fit into the III/V bracket, tax class IV serves to avoid the gendered pay disparity between women and men. The lower wages for women in some cases means they are subjected to a heavier tax burden. Tax class IV attempts to remedy this by excluding certain additional payments.
Tax Class IV with a Factor
Tax Class V
Married employees with spouses belonging to tax class III are automatically placed in tax class V. This class includes some of the highest deductions of all the tax classes and includes almost no annual allowance. The tax burden is minimised by the couple’s combination with tax class III.
Tax Class VI
This is the tax class reserved for persons with multiple incomes. So, the class itself is officially related to that second job or source of income. It does not include a basic allowance or any pension or child allowances, but the tax class can be combined with other classes depending on the situation, such as tax class I for single persons or II for single parents.
Find Out Your Tax Class: Overview of Conditions and Tax Allowances
Getting the hang of it now? Whether you’re married, how much you earn and how many children you have decides not only which tax class you belong to, but also about the tax allowance you receive. Take a look at the table below for a more visual summation of the above:
|Tax Class||Members||Basic Allowances|
Employees whose spouse lives abroad
Employees who live permanently separated from each other
Limited income taxpayers
|II||Single parent earning more than 450 € per month||€9,168 (additional relief amount of €1,272)|
|III||Married couples with one partner in tax class V||€18.336|
|IV||Married couples (single assessment)||€9.168|
|V||Married couples with one partner in tax class III||€0|
|VI||Employees with a second or third job||€0|
What Tax Class Am I In?
If you’re still unsure of which tax class you belong to, take a look at your pay slip. You’ll also find it printed on the Lohnsteuer certificate which you’ll receive once a year from your employer. If you need to know immediately, you can always contact your district’s tax office to find out your tax class.
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Tax Classes for Married Couples
Marriage as an arrangement comes with many important decisions. You’ll have to decide the right tax class for you both. Having children influences the decision because Germany grants tax advantages to married couples–especially those with children. The state will attempt to accommodate parents as much as possible. Married couples must carefully choose between the various class combinations to decide which is right for them.
Couples will automatically be assigned to tax class IV once married, however they then have the choice of combining classes III and V.
There’s no right answer when it comes to which tax class you should choose to belong to if you’re married. That depends on your respective salaries. Use a salary or tax class calculator to calculate your net salary and help you make the decision for you and your partner.
Should you need to change your tax class, you’ll have to apply for this in writing and mail your request to the tax office. You’re permitted to do this once a year. Should you and your partner separate, neither of you may any longer use the combined tax class and you will each resume your places in your corresponding tax classes.
Tax Classes III/V
The III/V combination is ideal for couples with a high disparity between incomes. The larger earner then applies for tax class III and benefits from a higher allowance and lower tax rate than class V. The tax rate is then the same for both partners, and the member of tax class III pays 60% while the other in tax class V pays 30%.
The low earner in this situation, belonging to tax class V, has a higher Einkommensteuer deduction. This combination is also suitable for situations in which only one member earns an income.
Couples using this option are obliged to file a joint tax return, resulting in both parties liable for any tax debts.
Tax Classes IV/IV
Usually chosen by couples whose earnings are similar, this tax class has more benefits for the couple than those in the III and V situation. For couples with each participant in tax class IV, the tax rates are paid separately.
Maternity and unemployment benefits are also higher in this tax class than the previous combination. This is because the benefits are calculated according to net income.
Both spouses can change tax classes if they agree to it. This might occur if the couple’s personal circumstances change, for instance having children, loss of employment or a salary increase. Couples can do this once per year and the deadline for submission is November 30 each year. Find the form to change tax classes here.
The Tax Classes and the Self-Employed
While not subject to the Lohnsteuer, if you’re self-employed you will be subject to the Einkommensteuer liability. In this case, you do not belong to any tax class and the amount you’re taxed depends on how your activity is defined–that is to say, if you’re exempt from trade tax as a freelancer or whether you yourself are a trader, run a sole proprietorship or partnership.
When self-employed, you pay your quarterly Einkommensteuer in advance. Your Einkommensteuer return then depends on whether you will be reimbursed for overpayments or have to pay back taxes. As a self-employed person, prepare your tax return extremely carefully and make sure to submit it on time. Mistakes made are often much more devastating when you’re self-employed, and you want to make the best possible use of the tax allowances and benefits provided. It’s a good idea to contact a tax advisor on these matters. Organise your bookkeeping and you will make the process easier for both you and your advisor.
Tax Classes and Allowances
If you’re a parent you’ll also benefit from tax relief. In this case, you can choose between the Kindergeld (child benefits) or the Kinderfreibetrag (child allowances). The Kindergeld is paid monthly, essentially an advance on the child allowance. Parents with their tax returns at the end of the year can choose this option. The Kinderfreibetrag also reduces the taxable income. In this case, you calculate your Einkommensteuer depending on the taxable income. The Kinderfreibetrag is deducted from it, ensuring parents who choose this option at least the minimum amount for their child to survive.
The parent couple is also able to claim the full Kinderfreibetrag for each child. The allowance per child depends on your tax classes as a couple. If you’re both in tax class IV, your child’s allowance will be divided between you and your spouse. In the case of classes III and V, the allowance comes from the parent in class III.
The amount of the allowance is dependent on your net wage before the birth of the child in question. If one of you stays at home once the child is born receiving parental allowance, then changes tax classes, this allowance can see a significant increase.
Changing Tax Classes: How It Works
You might find yourself in a situation where you need to change to a new tax class. These are some of the situations in which it might come up:
Tax classes change when:
- you get married
- you separate or divorce from your spouse
- your spouse dies
- you are single and have a child
- you take on a second job for which you need a second Einkommensteuer card
Change your tax class (once annually only) by submitting a written request to your corresponding tax office. It won’t cost anything, but you unfortunately can’t do it online. You can however download the form from the BMF (Federal Ministry of Finance) as a PDF. You’re required to provide the following personal information:
- Name and maiden name
- Date of birth
- Place of residence
- Marital status
- Tax number
- Tax identification number
Optimise Tax Burden by Choosing the Right Tax Class
You’re not required to pay the Lohnsteuer as a self-employed person, however if your spouse is employed you’ll have to choose a tax class.
Note: your tax class is primarily based on your personal circumstances as an employee. Classification in classes I, II, and VI may be predefined, but spouses should think carefully about selecting the tax class right for them. Don’t shy away from changing your tax class if things shift in your life, either. It will greatly benefit you and your family to always remain in the ideal tax class.