What are the tax classes in Germany and which tax class is best for you? Every taxpayer in Germany has a tax class. There are 6 classes in total. Your tax class depends largely on factors such as marital status, income, and whether or not you are a parent. Here is an overview of all the tax classes in Germany.
Tax Class 1 (Steuerklasse I)
This tax class is primarily for singles. Also for married couples whose partners are living outside Germany. As soon as the spouse moves to Germany you will have to change your tax class.
Also, Widows and Widowers are included in this tax class. However, at least one year after the spouse has passed.
Tax Class 2 (Steuerklasse II)
The Steuerklasse II is optional. Only single parents qualify for this tax class – single parents with at least one child living with them. The idea behind it is to provide some relief for single parents. Parents can save up to about 2000 Euros per year in taxes for the first child. From the second child, you will be saving about 240 Euros in taxes per additional ward.
Tax Class 3 (Steuerklasse III)
This tax class is also optional. It provides a way for couples to save on taxes when there is a huge difference in their annual income. For example, if Partner 1 earns 90,000 Euros and Partner 2 earns 25,000. This is how much they would have to pay per year in taxes if they both live in Berlin.
| Partner 1 (90,000 € per year) Tax Class 3 | Partner 2 (25,000 € per year) Tax Class 5 |
|---|---|
| 16,650.00 € | 5,250.00 € |
| Total Taxes paid by the couple | 21,900 € |
If Partner 1 opts for Class 5 and Partner 2 for Class 3, this is how much they would pay with the same income
| Partner 1 (90,000 € per year) Tax Class 5 | Partner 2 (25,000 € per year) Tax Class 3 |
|---|---|
| 29,454.00 € | 174.00 € |
| Total Taxes paid by the couple | 29,628 € |
So clearly this couple has to be careful which tax classes they choose. The spouse with more income should always in tax class 3.
Tax Class 4 (Steuerklasse IV)
This tax class is also for married couples. In this case, it’s best when both spouses earn about the same amount per annum. After getting married a couple(both spouses) is automatically put into this class by the tax office(Finanzamt). The couple will have to apply for a change if they think the combination of 3 and 5 is best for their situation. Taking our example couple again – Let’s assume they decided to stay in class 4. This is how much they would earn.
| Partner 1 (90,000 € per year) Tax Class 4 | Partner 2 (25,000 € per year) Tax Class 4 |
|---|---|
| 24,154.92 € | 2,410.92 € |
| Total Taxes paid by the couple | 26,565.84 € |
Tax Class 5 (Steuerklasse V)
As mentioned earlier, this tax class is for a married couple when one of the spouses is in tax class 3.
Tax Class 6 (Steuerklasse VI)
The tax class 6 is for everyone regardless of your family situation who has two income streams. It is always in combination of one of the classes from 1 to 5. Let me try explain! Assuming in addition to your regular job, you have a second job or has a small start up. The second job will be taxed with the class 6.
Why is this necessary you ask? It brings us to something called Freibetrag – the non-taxable income. Or should I say tax-exempt? This is how much you can earn in a year without having to pay taxes. For tax class 1 for example, this would be as at the time I am writing the post about 9,408 Euros.
The first income will be taxed with your primary tax class. The additional income will be then taxed with class 6. Your income in tax class 6 has a Freibetrag of exactly 0 Euros.
There is another exception if you have the so-called Minijob.
What is a mini-job?
A mini-job at a type of employment where the employee does not earn more than 450 Euros in a month.
If you have a mini job in addition to your regular income, you do not have to pay taxes on this income. If you only have a mini-job, you will fall below the tax allowance threshold and will not have to pay any taxes either.
I put together a simple overview for quick reference.
| Tax Class (Steuerklasse) | Requirement | Tax-free limit (Freibetrag) |
|---|---|---|
| Tax Class 1 | Singles | 9,408 Euros |
| Tax Class 2 | Single parents | 9,408 Euros |
| Tax Class 3 | Married (Spouse has tax class 5) | 18,816 Euros |
| Tax Class 4 | Married (Both partners have class 4) | 9,408 Euros |
| Tax Class 5 | Married (Spouse has tax class 3) | 0 |
| Tax Class 6 | Multiple Employers or income | 0 |
Conclusion
I hope I have been able to shed a bit of light on which tax class is best for you. Choosing the right class will help you save a few thousand euros per year. If you would like to calculate how much you can save with the 3 and 5 combinations, this is the website I used. It is quite straightforward and you can translate the form with your browser. That is a handy trick for living in Germany as an English speaker
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