Does Germany’s tax system make you nervous? You’re not alone. Let’s fix that together. Today, we’re breaking down tax classes in Germany to clear things up once and for all.
Are you a foreigner trying to navigate life in Germany? Here are some other articles you might like:
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Learn what tax categories Germany has, how to change tax classes in Germany, and more.
The tax system and tax classes in Germany
Tax classes in Germany. How to figure out yours
How to change tax class in Germany
The tax system and tax classes in Germany
There are various types of taxes charged by the government, federal states, municipalities, and the church. These include income tax, VAT, trade tax, solidarity surcharge, property tax, energy tax, etc.
Since tax classes apply only to employed individuals, let’s take a closer look at income tax. There are many factors influencing the income tax amount you have to pay, including:
- Income level. Germany has a progressive taxation system, meaning higher earners pay more. At the same time, if you make under €11,604 a year, you are exempt from paying any income taxes. To make an approximate estimation of how much you will pay, you can use a wage calculator. See German tax rates in 2024:
| Annual income | Tax rate |
|---|---|
| Up to €11,604 | 0% |
| €11,605–66,760 | 14–42% |
| €66,761–277,825 | 42% |
| €277,826 and above | 45% |
Type of income: employment, self-employment, investment income, rental income, pension, scholarships, etc. If you’re an employee, it is your employer who deducts the taxes (Lohnsteuer) from your salary and transfers them to the Tax Office. Alternatively, self-employed individuals and entrepreneurs pay Einkommensteuer and file annual tax returns independently.
Tax class (Lohnsteuerklasse). This determines how much of your tax-free basic allowance (Grundfreibetrag) is included on your payslip. The tax class system is designed to account for various personal and familial circumstances.
Tax classes in Germany. How to figure out yours
Your tax class impacts how much of your income is tax-free and how much tax is withheld from your salary each month. See which one is your tax class:
| Tax class | Marital status | Conditions |
|---|---|---|
| Tax classes in Germany: class I | Single | This includes **single, widowed, married but permanently living separately or divorced** individuals without children. They are entitled to a tax-free basic allowance of €11,604. For tax class 1 in Germany, the percentage of tax starts at 14% and is progressive. The more you earn, the more taxes you pay. |
| German tax classes: class II | Single with a child | Single parents living with their children are in class II. They are eligible for €4,260 tax relief on top of the €11,604 basic allowance and other benefits, such as higher child allowances. |
| Tax categories in Germany: class III | Married | Tax class III is a tax class for married couples in Germany. But only if spouses live in the country and are not permanently apart. If one spouse doesn't make money or earns significantly less than the other spouse, you can do a 3 and 5 combination (5 for a spouse with less income and 3 for the higher-earner). |
| German tax classes: class II | Single with a child | Single parents living with their children are in class II. They are eligible for €4,260 tax relief on top of the €11,604 basic allowance and other benefits, such as higher child allowances. |
| Tax classes in Germany: class IV | Married | When you get married, the government automatically assigns you tax class IV. The combination of 4 and 4 (as in you and your spouse’s tax class) will work if you both earn around the same amount of money. You can also change tax class in Germany, which we’ll explain later in the article. |
| German tax classes: class V | Married | Spouses of class III tax payers with lower income. |
| Tax categories in Germany: class VI | For individuals who have two jobs covered by social insurance. In this case, one can expect higher deductions. |
Use a tax class calculator to understand what works for you better.
Some clarifications to the table:
- When choosing a 4 and 4 scheme, you can use the “with factor” method, known as “Faktorverfahren”. It will help distribute the tax burden evenly between the spouses.
- Although filing tax declarations at the end of the year for classes I, II and IV is not mandatory, it is recommended. That way, you can be eligible for claiming deductions, refunds, etc.
- Regardless of the chosen combination, it is advisable for married couples to file a joint tax return at the end of the year to ensure they receive any eligible refunds or deductions. Couples in the 3-5 combination might find they owe additional taxes at the end of the year if the monthly withholdings did not fully cover their overall tax liability.
How to change tax class in Germany
When can you change tax class in Germany? If you’re getting married or divorced, have become a single parent, or there’s a big change in your spouse’s income. To make a change, fill out an “Antrag auf Steuerklassenwechsel bei Ehegatten/Lebenspartnern form” by downloading it on the website of your local tax office (Finanzamt). Submit in person at Finanzamt, online, or by mail.
Today, we’ve covered tax classes in Germany. Navigating such topics is rarely fun but always necessary. We hope you now have a better idea of what class you should apply for. If you ever feel homesick filing taxes in Germany, remember you can stay connected with loved ones back home via Profee. We offer favourable exchange rates, low fees, and 100% security. Send money from Germany to 65+ countries worldwide at beneficial terms.
