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The different tax classes can sound complicated to expats in Germany. What are the different tax classes? What do they mean? Which tax class is the best for your individual situation? Can you really save tax by changing your tax class in Germany? In this article, you will learn everything you need to know about tax classes in Germany.
A short summary for busy people
- The six tax classes in Germany determine your income tax based on factors like your marital status, spouse’s income, number of children, etc.
- Your tax class can impact benefits such as parental allowance, unemployment benefits, sickness benefits, etc.
- You can change your tax class if you have certain life events such as marriage, divorce, having a child, etc.
- Some changes are automatic (e.g. getting married), and others require application.
- You may want to change your tax class once you know you are expecting to maximize your parental allowance
- You can change your tax class online through “Mein Elster” or submit it physically at the tax office.
- Changes should be applied for by November 30 to take effect the same year.
- Self-employed individuals do not need a tax class, except if they have additional employment.
- For couples, your tax liability will be the same no matter which tax class you choose. However, using a different tax class can impact your family’s cash flow during the year.
Introduction
Before I moved to Germany, I had never heard of tax classes. I’m originally from Hong Kong, where taxes are extremely easy and simple compared to Western countries.
Moving to Germany was a completely different experience. The tax system here is complicated. And everything is in German, which makes it even harder to understand.
I had to learn about something called a tax class, and to be honest, I had no idea what it meant at first. I just kept hearing about it over the years.
Now, after living in Germany for some time, I have a better understanding of tax classes. I want to share what I’ve learned with you in this article. And also the mistake I made that cost me hundreds of Euro per month during my parental leave.
I hope it helps you navigate the tax system here and save some money.
Read more:Â
- Tax Return in Germany – Comprehensive Guide for Expat
- 11 Best Tax Return Software Germany – Suitable for Anyone
Disclaimer: Please be aware that this article is intended to provide you with a brief overview of the tax classes in Germany. This blog is not qualified to give you any tax advice according to German law. If you need more details and specific advice on your personal situation, we would highly recommend you consult a tax adviser or the German tax office.
Personal Income Tax in Germany
Before you start working in Germany, it’s important to know a bit about personal income tax, tax classes, and other related taxes in Germany.
What income is taxable in Germany?
If you live in Germany, you pay tax on all your worldwide income. If you’re a non-resident, you pay tax only on income from German sources, like investments or employment, often through withholding.
What is Income Tax?
If you live and work in Germany, you’ll need to pay individual income tax (Einkommensteuer). However, there’s a tax-free allowance of up to €11,604 for a single person in 2024.
Income tax is the money taken from your earnings and given to the government. Your employer will deduct this tax from your paycheck and send it to the German tax office, along with social security contributions.
How much income tax do you need to pay in Germany?
Germany uses a progressive tax system, which means the more you earn, the higher the percentage of your income you pay in taxes. Higher earners pay more tax.
You can see below how much tax rate a single person needs to pay in Germany for 2024.
Income (EUR) | Income Tax Rate 2024 |
 0 – 11,604 | 0% |
 11,605 – 66,760 | From 14% to 42% |
 62,761 – 277,825 | 42% |
 Above 277,825 | 45% |
Want to know how much you need to pay?
Use this unofficial tax calculator to have a feeling based on your gross salary.
What are tax classes in Germany?
In Germany, every worker is assigned to a tax class, known as “Lohnsteuerklasse.” The tax classes determine how much income tax you need to pay. Your tax class depends on factors like your marital status, your spouse’s income, and the number of children and jobs you have.
To get placed in the right tax class, you need to inform the German authorities about your current situation. The salary tax will be automatically deducted from your monthly salary based on your tax class.
If something in your life changes, like getting married or having a child, you can update your tax class. Any mistakes in your tax deductions will be corrected when you file your tax return at the end of the year.
Read also:Â Salary in Germany: Are you getting paid enough?
What are the 6 tax classes in Germany?
In Germany, your tax class (Steuerklasse) determines the rate at which your salary is taxed. There are six different tax classes, and each one depends on your personal situation.
Let’s break them down in simple terms:
Tax Class | Who is this for? | Yearly Basic Allowances (Grundfreibetrag) in 2024 |
I | Single, widowed, divorced, or permanently separated individuals. | €11,604 |
II | Single parents raising children alone. | €11,604 |
III | Married with one higher earner. Both live in Germany. | €23,208 |
IV | Married couples with similar incomes | €11,604 |
V | Married couples when one spouse is in tax class III | €0 |
VI | Employees with multiple jobs | €0 |
Tax Class 1: Singles
Who it’s for: Single, widowed, divorced, or permanently separated individuals. Employees whose spouses live abroad.
If you’re single and working, this is your default tax class.
If you’re living with someone as a couple but aren’t married or in a registered civil partnership, you’re still considered single. This is true even if you live together or have children.
Read also:Â
- 25 Best Dating Apps & Sites in Germany That Really Work – Free and Paid
- Dating in Germany – Dating a German Guy
Tax Class 2: Single Parents
Who it’s for: Single parents raising children alone.
Benefits: Extra tax credits for single parents. However, you need to apply for this class. It’s not automatic.
This class gives you a tax relief of €4,260 per year (for 2024). Plus, you get an extra €240 for each additional child.
To qualify as a single parent, you need to live alone with at least one child in your household. You also need to be eligible for child benefit (Kindergeld) for your kids. This helps reduce your tax burden and gives you a bit more financial breathing room.
Read also:
- Childcare in Germany – Kita and Other Options
- Having a baby in Germany – From pregnancy to postnatal care
Tax Class 3: Married with One High Earner
Who it’s for: Married couples where one spouse earns significantly more. The couples both need to be registered and live in Germany.
Benefits: The higher earner gets taxed less, and their spouse gets put in Tax Class 5, which is taxed more.
This class can be very beneficial for couples with unequal incomes.
Tax Class 4: Married with Similar Incomes
Who it’s for: Married couples where both spouses earn similar incomes.
Benefits: Both partners get taxed individually but fairly, which is often better if their incomes are similar.
Newly married couples are automatically placed in this class.
Tax Class 4 with Factor
Who it’s for: Married couples who want to split their tax advantage during the year.
Benefits: The tax office calculates your expected yearly tax and withholds it monthly, avoiding a big tax bill at the end of the year.
This option is good for those who want a balanced monthly tax deduction.
Tax Class 5: Married with One Low Earner
Who it’s for: Married couples where one spouse (the lower earner) is taxed higher, while the other is in Tax Class 3.
Benefits: The combined effect of Tax Classes 3 and 5 can be beneficial for couples with a significant income disparity.
The lower earner gets no tax-free allowance, but the higher earner in Tax Class 3 gets double the amount.
Tax Class 6: Multiple Jobs
Who it’s for: Individuals with more than one job.
Benefits: None. This class has the highest deductions since it’s for additional income.
If you have a second job, you’ll be placed in this class, which means more of your income gets taxed.
Which Tax Class are you in?
If you’re unsure about your tax class, you can check your payslip. It’s also printed on the Lohnsteuer certificate you get from your employer once a year. You should look for the German word “Steuerklasse/ Faktor” and you will see a number next to it. That is your tax class.
If you need to find out right away, you can also contact your local tax office.
What does your tax class depend on?
The tax office assigns each employee a tax class based mainly on marital status. Your tax class in Germany is not based on your job, but on whether you are single, a single parent, or married. Your tax class determines how much income tax you pay.
What if you are self-employed?
If you’re self-employed, you’re not subject to wage tax (Lohnsteuer). Unlike employees, income tax isn’t taken from your monthly earnings. Instead, you pay your income tax (Einkommensteuer) directly to the tax office, so you don’t have a specific tax class.
However, even if you are self-employed, you may sometimes have a tax class. This can happen if you also have a job as an employee in addition to your self-employment.
In this case, you will have a tax class for your employee job. Taxes will be deducted from your wages for your employee job, and you’ll also need to pay income tax on your freelance work.
Read also: Self-employed in Germany – A Comprehensive Guide
Can you really save tax by changing your tax class?
When I first came to Germany, people told me about a couple. The husband was a professor and the wife was a student. It means that the husband was earning significantly more than his wife. By default, their tax class is IV/IV. But they changed their tax class to III/V and saved a whole lot of tax.
So, is this true that you can save a lot of money by changing your tax class?
Not exactly.
At the end of the day, how much tax you pay as a couple will be the same, no matter if you choose IV/IV or III/V. What differs is the net income you receive in your bank month by month.
Let’s have a look at this example.
This couple lives in Bavaria. The husband has a yearly salary of 50,000 EUR, while the wife has 30,000 EUR. They have no kids.
Tax class chosen | Tax paid by the husband | Tax paid by the wife | Total tax paid | Tax refund or liability (negative) | Total tax paid after tax return |
|---|---|---|---|---|---|
III/V | €3,270 | €5,899 | €9,169 | -€273 | €9,442 |
V/III | €12,344 | 0 | €12,344 | €2,902 | €9,442 |
IV/IV | €7,177 | €2,501 | €9,678 | €236 | €9,442 |
IV/IV with factor 0.975 | €6,997 | €2,438 | €9,435 | -€7 | €9,442 |
As you can see, if they choose tax class III/V, they will only pay 9,169 EUR during the year. This is less than if they would choose other tax classes.
However, after they file their tax return in the following year, they will have to pay back 273 EUR to the tax office. Tax class III/V can still be a good choice for people as it will give them a better cash flow during the year.
For those who do not like to pay back tax after the year, choosing IV/IV with a factor can be good. In the above case, the tax withheld during the year is more or less accurate. And it is fairly distributed to both the husband and wife. They don’t have to worry about paying back a lot of tax after the year.
Therefore, changing the tax class will not really save you tax. But it does impact your family’s cash flow. It’s worth reviewing your situation regularly and making adjustments as needed.
Read also:
- Invest in Germany as a Foreigner – Best English Guide
- The Best Investment to Profit From Inflation in Germany
6 Tips to save some tax in Germany
Even though you cannot really save your total tax by changing your tax class, sometimes you may be able to get some financial benefits by changing your tax class.
The following are 6Â tips to save some tax in Germany.
1. Relief for Single Parents
If you are a single parent, you can apply to change your tax class to II. In tax class II, there’s a relief amount for single parents. You get this if you have at least one child living with you and you’re eligible for child benefit or allowance.
The tax class II gives you a tax relief of €4,260 per year (for 2024). Plus, you get an extra €240 for each additional child.
So, make sure you change your tax class if you become a single parent.
2. Get a Tax Refund
Even if you’re employed and not required to file a tax return, it might be wise to do one. If you haven’t lived in Germany for a full tax year, you might be entitled to a tax refund.
3. File your tax on time to avoid additional charges
If you file your taxes late, you’ll face penalty fees. These penalties are separate from any interest charges on unpaid taxes.
The deadline for submitting your tax return is usually on the 31st of July of the following year. The deadline for tax return 2023 has been extended. So, you can file your 2023 tax return by 31st August 2024 (or 31st May 2025 if you use a tax advisor).
Pay attention to the deadline for each tax year as they may be a bit different due to the extension.
4. Church tax
If you don’t have a religion and want to avoid the church tax, do not mention your church affiliation in any official documents (e.g. when you register your address in Germany).
Check this out for more details: Church Tax in Germany – How to Stop Paying It?
5. Take advantage of different tax allowance
Even though taxes in Germany are high, you can claim many things as tax returns. Keep all your paperwork and receipts for expenses, as you might get money back from them.
Also, make sure to use all the tax deductions available. For example, if you send money to your family back home, those payments might be tax-deductible. I’ve saved thousands of euros by claiming these expenses.
Check out how I did it here: Maintenance payments (Unterhaltszahlungen) – How to deduct in your German tax return?
6. Change your tax class strategically
When I was pregnant for the first time in Germany, I was so overwhelmed by all the things that I had to do. Not only doctor appointments. But also administrative stuff and paperwork.
A big mistake that I made was not I didn’t adjust my tax class.
I mean, how could I have known about this beforehand?
In Germany, you get a parental allowance when you are on parental leave. Back then, I got paid for 12 months after my baby was born while I stayed at home. The parental allowance was calculated based on my net salary.
If I had changed my tax class to V/III, I would have paid much less tax while my husband would have paid much more. It also meant that I would have a much higher net salary. Since the allowance was calculated based on my net salary, I could have gotten 200 EUR more per month for 12 months!
I learned this lesson. When I had my second baby, I went to the tax office and changed my tax class immediately once I knew that I was expecting. The tax class needs to be changed at least 7 months before your parental leave!
Besides parental allowance, other benefits such as sickness benefits and unemployment benefits are also calculated based on net income. So, plan your tax class accordingly for a higher benefit amount if you can.
Changing your tax class in Germany
How Often Can I Change My Tax Class in Germany?
Married couples and civil partners can change their tax class multiple times per year. Besides, certain life events can also trigger a change.
What are the life events that allow you to change your tax class?
You might need to change your tax class if:
- Your partner starts working again
- You become unemployed
- Your partner passes away
- You get divorced or live separately from your partner
- You go on parental leave
- You have a child
- You go on retirement
Must I change my tax class, or is it automatic?
It depends on your life events.
- Divorce: After a divorce, both partners go back to tax class 1 or 2. This requires an application.
- Single Parent: If you become a single parent, you can switch to tax class 2 by applying at your local tax office.
- Marriage: If you get married, your tax class changes automatically. If you want a different class like 3/5 or 4 with factor, you need to apply.
- A second job: If you have two jobs, you’ll get two different tax classes. Your first job gets a tax class from 1 to 5, based on your marital status. For your second job, you automatically get tax class 6 if it is not a mini-job.
When your tax class changes, your employer is automatically informed by the tax authorities. So, you do not need to inform your employer yourself.
Where Can I Change My Tax Class?
You need to fill out an application to change your tax class if you’re married or in a civil partnership. This application form is called “Antrag auf Steuerklassenwechsel bei Ehegatten/Lebenspartnern“.
You can do this online through “Mein Elster” or submit it physically at the tax office. If both you and your partner are affected, like when you get married, you both need to sign the application. If you’re choosing tax class IV with the factor method, you’ll also need to include your expected wages for 2024.
If you go to the tax office in person, make sure to bring proof of identity.
If you want to switch from tax class combination III/V to IV/IV, only one of you needs to apply. This way, both of you will be placed in tax class IV/IV.
Remember to submit your application by 30th November for the change to take effect for the current year.
Conclusion
Understanding your tax class in Germany is essential for managing your finances. Your tax class can affect how much tax you pay and what benefits you receive. Whether you’re married, single, a parent, or self-employed, keeping track of your tax class and making changes when needed can save you money.
If you’re unsure about your tax situation, a tax advisor can help. Remember to meet deadlines and file your taxes correctly to avoid penalties. Staying informed and proactive about your tax class can significantly improve your financial situation in Germany.
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DISCLAIMER
Please be aware that this article is intended to provide you with a brief overview of the tax classes in Germany. The information and tips in this article are based on personal experiences and thorough research.
This blog is not qualified to give you any tax advice according to German law and we do not accept any form of liability resulting from reading this article. Our blog makes no guarantee as to the accuracy or timeliness of the information in this article. If you need more details and specific advice on your personal situation, we would highly recommend you consult a tax adviser or the German tax office.
What is your tax class in Germany? Have you ever changed your tax class in Germany? Leave a comment below and share your experience!Â
Moving to Germany or new in Germany? Check out our Resources Page for all the help you need!
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