Tell me what tax class in Germany you are in and I will know half of your story. This piece of information might as well be in your dating app profile or CV. Incidentally, I was asked by plenty of recruiters in the first telephone interview about which tax class I am in. I found this question intrusive, unnecessary and a poor attempt to label me as a candidate too early.
There are 6 tax classes in Germany. The categories revolve mostly around the family status, because the family has a special status in Germany, according to the law. There is small bonus when it comes to income difference between the spouses and a disadvantage if you are taking a second taxable job.
Note: having a child does not make any difference in qualifying for a certain category.
The tax classes are:
- Tax class 1 – people who are not married. Here qualify singles, divorced, widowers and those who are in a couple, but not married;
- Tax class 2 – single parents;
- Tax class 3 – the partner in a married couple who has a significantly higher salary;
- Tax class 4 – couples who are legally married. Registered partnership for same sex marriages enters this category as well;
- Tax class 4 with factor – also for married couples, but here the tax calculation is a bit more equitable;
- Tax class 5 – the partner in a married couple who has a significantly lower salary or no income at all;
- Tax class 6 – for individuals with two taxable incomes;
What stories are the tax classes telling us?
As a single parent, you receive a tax relief (der Entlastungsbetrag). For the pandemic years 2020 and 2021, the relief was increased from EUR 1,908/year for the first child to EUR 4,008/year. The relief increases from the second child onwards from EUR 4,008/year with an additional EUR 240/child.
These benefits are not automatically calculated. The parent needs to submit a special form to the Finance department called “Versicherung zum Entlastungsbetrag für Alleinerziehende”.
If you are doing a house search it gives you a good financial advantage, in securing a decent rental property.
Single income couple/family
If you just moved to Germany for a new job and your spouse does not have a job in Germany, that means you qualify for a tax class combination of 3/5.
In case your spouse does have a job, but the difference between both of your gross monthly salaries is greater than EUR 2,000, then it is worth registering for this tax class.
Double income married couples
In the fortunate situation when both partners in a married couple have a taxable income, they can opt for the more satisfying tax class 4 with factor. This means that the partner earning a smaller salary in tax class 4 with factor receives more money in the net salary compared to being in tax class 5.
However, the sword is double edged: on one hand, in this tax bracket the partners barely have to return anything when doing the tax declaration, but on the other hand they pay higher taxes than in the 3/5 combination.
Parents who are not married, but live together
This is unfortunately a grey area, bringing a major financial disadvantage.
If the parents are not legally married, one parent is in tax class 2, as a single parent, while the partner is in tax class 1, as a single person. Without a certificate for a civil union, unfortunately the two individuals qualify as two persons who care for a child, but are not necessarily a family.
Working two jobs
Getting a second job because your main one does not pay enough is unfortunately, in a way, penalized. More income, more taxes. You can have a combination of full-time (main) & part-time (secondary) jobs or part-time & part-time jobs.
Mini-jobs of EUR 450 do not qualify as part-time jobs and are not even taxable (only the employer bears the taxes). Thus you can have a full-time job and some little extra income, without paying much more taxes.
These are jobs that have a salary typically between EUR 451-EUR 1,300. The taxes here are very low, but there are two other big advantages: the social insurance contributions are pro-rata, while you can still benefit from the full pension insurance. Below are the tax contributions for a midi-job with EUR 1,300 salary:
Tax class 1 –aprox. 33 Euro
Tax class 2 – aprox. 6 Euro
Tax class 3 – 0 Euro
Tax class 4 – aprox. 33 Euro
Tax class 5 – aprox. 157 Euro
Tax class 6 – aprox. 194 Euro
- If you get married on German territory, you are automatically registered by the Finance department in tax class 4.
- You can do a tax class change only once a year. The deadline is November 30th.
- The tax class in Germany change will be communicated to your employer. You will not receive an official statement per post or e-mail, but you will see the difference in the payslip.
- You can play and do your calculations using this online tax calculator in English.
Tax classes have benefits to offer for every taxpayer. All you need to do is assess the situation for the present, define your objective in the future, communicate with your partner (if applicable) and take a decision.
Please note that this article does not constitute legal or financial advice. It is informative.