The German government is planning to abolish tax classes 3 and 5, which would have consequences for married couples and registered civil partnerships.
Dortmund – The total of six tax brackets have a major influence on monthly net income. After the wedding, married couples are spoilt for choice. You have to choose between income tax classes 3, 4 or 5 – for now.
Tax brackets 3 and 5 on the brink of extinction – consequences for millions of people in Germany
Because the federal government now wants to get rid of tax classes 3 and 5 – they are to be abolished. "We want to further develop family taxation in such a way that partnership responsibility and economic independence are strengthened with regard to all family forms," it says on page 115 of the coalition agreement between the SPD, Bündnis 90/Die Grünen and FDP. It is not yet known when exactly the government's plan will be implemented, RUHR24 reports.
"In the course of improved digital interaction between taxpayers and tax authorities, we will transfer the combination of tax classes III and V to the factor method of tax class IV, which will then be easy and unbureaucratic to apply and create more fairness," the government announces.
Tax classes 3 and 5 before the end: This is what the income tax brackets mean for married couples
What is the point of all this and what do the tax brackets or their merging mean in detail? For married couples and registered civil partnerships, a combination of income tax classes 3/5 and 4/4 has so far been possible. In the first variant, the higher-earning part of the couple – currently mostly the man – can be grouped into tax class 3. The second partner – usually the woman – is in class 5 and pays higher deductions there.
This is known as spousal splitting. This is explained by the Federal Agency for Civic Education as follows: "Not each spouse has to pay taxes for his or her income alone, but the income of both spouses is added together and then halved. For this divided amount, the income tax is calculated and then doubled. Through this procedure, spouses have advantages if one partner earns significantly more than the other."
This is what the income tax brackets mean in detail:
Tax class 1 (single):
Characteristics: Tax bracket for single, separated (in the year following separation) or divorced, widowed employees (in the second year following death).
Tax burden: high tax burden.
Tax class 2 (single parent):
Characteristics: Single employees with one or more tax-eligible children with whom you live alone in the same household.
Tax burden: same as tax class 1 but with consideration of a relief amount for single parents.
Tax class 3 (married/partnered):
Characteristics: Tax bracket for a spouse or partner (person A) who is not permanently separated from their spouse/partner. In addition, tax class 5 must be used for person B, provided that income tax is payable for person B.
Tax burden: combination tax class 3/5 or 5/3; Tax class 3: lower tax burden; Tax class 5: higher tax burden.
Tax class 4 without factor (married/partnered):
Characteristics: Tax bracket for a spouse or partner (person A) who is not permanently separated from their spouse/partner. In addition, tax class 4 without factor must also be used for person B.
Tax burden: high tax burden.
Tax class 4 with factor (married/partnered):
Characteristics: Tax bracket for a spouse or partner (person A) who is not permanently separated from their spouse/partner. In addition, tax class 4 with factor must also be used for person B.
Tax burden: same as tax class 4 without factor and taking into account tax advantage through spousal splitting.
Tax class 5 (married/partnered):
Characteristics: Tax bracket for a spouse or partner (person A) who is not permanently separated from their spouse/partner. In addition, tax class 3 must be used for person B, provided that income tax is payable for person B.
Tax burden: combination tax class 3/5 or 5/3; Tax class 3: lower tax burden; Tax class 5: higher tax burden.
Tax class 6 (additional employment/regardless of marital status):
Characteristics: Employees with several employment relationships at the same time. As a rule, tax class 6 is used for part-time employment.
Tax burden: highest tax burden.
Source: Financial Administration for North Rhine-Westphalia
Tax brackets 3 and 5 on the brink of extinction: disadvantages for women – that's why the government is planning a reform
In an interview with the Handelsblatt, Family Minister Lisa Paus (54, The Greens) and Economics Minister Robert Habeck (53, The Greens) emphasize: "Almost half of women in this country work part-time: At 48.8 percent, Germany has one of the highest part-time rates in Europe. For men, it's only 11.5 percent."
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At the same time, they put "gender equality in working life" in the foreground as a "central issue of justice and freedom". After all, economic independence is one of the prerequisites for a self-determined life and for building one's own prosperity (more news on the subject of finances on RUHR24).
As the table above shows, the lower-earning partner – usually the woman – has a higher tax burden in tax class 5, which in turn is more than offset by the advantages in tax class 3 by the higher earner. In any case, the wage tax is not finally settled until the tax return at the end of the year.
The German government is planning to abolish tax classes 3 and 5. ©
Tax classes 3 and 5 on the verge of extinction: This is the difference to the tax combination 4/4
As reported by Focus, the tax class combination 3/5 regularly leads to larger additional tax payments in practice. A transfer of spouses into 4/4 with factor should lead to the fact that the wage tax paid each month is very close to the one actually due. This would result in little to no additional payments.
A leaflet from the Federal Ministry of Finance states: "With the factor method, the wage tax deduction is very closely approximated to the expected annual tax liability. In this way, higher additional payments (and, if necessary, income tax advance payments) can be avoided, which can occur with the tax class combination III/V."
Tax classes 3 and 5 on the brink of extinction: Concrete example shows advantages and disadvantages
How this is presented in detail is shown by a concrete example of the ministry, where an annual income of 36,000 euros is estimated for spouse A and an annual income of 20,400 euros for spouse B. If both spouses are covered by social security in all branches, they together pay income tax of 4 euros in the tax combination 4/4939 without factor, with 4128 euros attributable to spouse A and 811 euros to spouse B.
The expected income tax in the splitting procedure is 4780 euros. The couple should therefore be happy about a refund of 159 euros at the end of the year.
Tax classes 3 and 5 on the verge of extinction: High back tax payment – advantage of tax class combination 4/4
In the case of the tax class combination 4/4 with factor (0.967), the married couple would pay 4775 euros in income tax, of which 3991 euros are attributable to spouse A and 784 euros to spouse B. According to the Federal Ministry of Finance, this combination would result in "neither a high additional payment nor a refund".
However, the situation is significantly different with the tax class combination 3/5. Since the jointly assessed couple would have paid only 4001 euros in income tax (1058 euros for spouse A and 2943 euros for spouse B), they would have to pay an additional payment of 779 euros.
