Why Germany has tax classes

When you start work in Germany, your employer deducts income tax from every payslip. The tax class (Steuerklasse) tells them how much to withhold each month. There are six, numbered I to VI.

The important thing to understand first: your tax class only affects how much is taken each month. It does not change how much tax you owe for the year. That is worked out when you file your tax return (Steuererklärung), and any difference is paid back or collected then.

The six classes

  • Class I: single, divorced, widowed, or married but permanently separated. This is the default for most people.
  • Class II: single parents who live with a child and get the single parent relief.
  • Class III: married or in a civil partnership, where one partner earns much more or is not working. The partner in class III has lower withholding.
  • Class IV: married couples who earn similar amounts. Each partner uses class IV.
  • Class V: the partner of someone in class III. They have much higher withholding.
  • Class VI: for people with a second job. Withholding is highest because the first job already used the allowances.

III and V or IV and IV

This is where most couples get confused. If one partner earns much more, III and V can give the couple more money each month, because the higher earner takes home more. But the lower earner in class V takes home noticeably less.

The catch: the couple often owes more at the end of the year. Withholding in III and V is based on assumptions, and the tax return can reveal a back payment. It also affects benefits that are calculated from net pay, such as parental allowance (Elterngeld), unemployment benefit and sick pay. The partner in class V gets a lower benefit because their net is lower.

The IV with factor option

Class IV with factor (IV mit Faktor) is a fairer middle option. Both partners stay in class IV, but the withholding is reduced to match the actual split of income. It usually avoids surprises when you file, and it keeps both net pay figures closer to reality. You apply for it at your local tax office.

When to change class

You can change class once a year as a couple, and also when your situation changes, such as marriage, separation or the death of a spouse. A change does not mean you pay less tax in total. It only shifts the timing.

A practical way to decide

  1. List both gross salaries.
  2. Run both through the Germany salary calculator and compare net pay.
  3. Think about whether either of you expects to claim Elterngeld or unemployment benefit in the next two years.
  4. If your incomes are close, stay in IV and IV.

What to remember

  • The tax class only controls monthly withholding.
  • The final tax is settled in the tax return.
  • If a benefit depends on your net pay, think carefully before choosing V.

If your situation is complicated, a Lohnsteuerhilfeverein or a Steuerberater can check your choice, and many give you an answer for a modest membership fee.

What this means for a baby

If you expect to claim parental allowance (Elterngeld), your tax class matters because the payment is based on your net income in the twelve months before the birth. A partner in class V has a lower net pay each month, so a lower Elterngeld, even though the couple's yearly tax is the same. The tax class that applied for most of those twelve months is the one that counts, and a late change is generally ignored, so couples usually plan the switch many months before the due date. Confirm the current rule with your Elterngeld office before you change anything.

A simple scenario: a couple where one earns €70,000 and the other €30,000 may take home more each month in III and V. If the lower earner then takes parental leave, the Elterngeld is calculated from a smaller net figure than it would be in class IV. Over a year of leave, that can cost more than the extra monthly cash gained earlier.

Questions people ask

Does my tax class change my yearly tax? No. It changes the monthly withholding. Your actual yearly tax is settled in the tax return.

Can I switch from III and V to IV and IV? Yes, once a year, and in a year of marriage or other life changes. It is done at the tax office or through ELSTER.

What if I am unmarried with a partner? Tax classes III, IV and V are only for married couples and civil partners. Unmarried partners are both in class I.

Do I have to file a return if I am in class IV? Most people in III, V or IV with factor must file. Employees in other classes often do it voluntarily to claim back money.

Is class II available to couples? No. Class II is for single parents who live with a child and qualify for the single parent relief.

Does the tax class affect my pension? No. Your pension contributions are based on gross pay, not on your tax class.