Tax classes 3 and 5 are to be abolished. In Germany, millions of couples would be affected by the reform: What consequences would it have for them?
Hamm - What flowers? Which buffet? Which party location? How many guests? "Yes, I do" is easy to say, but a wedding leads to a whole avalanche of other decisions. When it comes to marriage, even very unromantic questions like these have to be answered: "Honey, which income tax bracket do we take: 3/5, 4 or 4 with factor?"
If the federal government has its way, married couples or those in a registered partnership will have less choice in the future. It is currently working on a legislative package that will abolish tax classes 3 and 5 (also known as III and V). Millions of people in North Rhine-Westphalia and throughout Germany are affected by the tax bracket plans, as wa.de reports.
Planned end for tax classes 3 and 5: What this means for couples
Only married couples can choose between different classes at all, because the income tax class in Germany is primarily based on marital status:
- Tax class 1: for single persons
- Tax class 2: for single parents
- Tax class 3: married and a heavy earner
- Tax class 4: married and the standard case
- Tax class 5: married and low-income earners
- Tax class 6: several jobs subject to social security contributions
According to the Federal Statistical Office, most married couples still opt for the combination of tax classes 3 and 5. What are the implications of their abolition? And what's the point of all this at all?
Income tax bracket: Combination 3/5 good for different incomes
The tax bracket basically has an influence on the monthly net income of a couple. If one partner earns significantly more than the other (rule of thumb: 60 percent and more), the combination is 3/5 favorable. The lower-earning partner (income tax class 5) has very high deductions from the gross salary, but this is more than outweighed by the advantages of the higher earner (tax class 3) at the end of the month. If both partners earn about the same amount, the tax class combination 4/4 makes the most sense. How the choice of tax brackets affects income is shown by the gross-net calculator of Stiftung Warentest.
The bottom line is that both models do not do much, because settlement is always done with the income tax return. Important: By choosing the tax class combination, you can only influence the amount of the wage tax deduction by the employer, taxes cannot be saved with it. If a couple has not made the best choice of income tax brackets, they will receive less net from the gross every month, but can get it back via the tax return at the end.
Wage tax reform: More net of gross for second earners
However, the bill is not just about numbers, but about social aspects and greater justice. In reality, the lower-earning part of a couple is usually the woman, who is then classified in tax class 5 and disadvantaged by particularly high deductions. The reform would leave the second earner more net of the gross and - according to the hope of Family Minister Lisa Paus (Greens) - "strengthen the economic equality of women". The traffic light coalition also hopes that by abolishing the combination, 3/5 more women will become employed or increase their working hours.
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According to the coalition agreement, the tax class pair III/V is to be generally transferred to the factor method of tax class 2010, which has existed since 4. The factor ensures that the income tax burden within a marriage or registered civil partnership is distributed more fairly. Everyone pays the share of income tax that they have in their joint income.
Due to this factor, the tax office already takes into account the splitting advantage during the year. In concrete terms, this means that the tax office first calculates the expected annual income tax liability of the married couple or registered partnership. This is then divided by 12 months and withheld monthly as income tax. This is intended to avoid back tax payments as far as possible.
It is uncertain when the major tax bracket reform will come. The legislative package is in progress. However, some changes in taxes for 2023 have already been decided, employees can rejoice. But retirees also have reason to celebrate. From July 2023, millions of pensioners will receive significantly more money - a table shows how much.