finances - Couples mostly choose tax classes 3 and 5
Married couples and life partners continue to predominantly choose tax class combinations 3 and 5. According to data from the Lohn- and Einkommensteuerstatistik for the tax year 2020, as reported by the Statistical Office in Wiesbaden, approximately 2.1 million couples out of the around 5.3 million jointly taxable taxpayers with only income from non-self-employed work made this choice. This represents a 39% share.
Furthermore, according to the data, another 1.3 million couples (25%) had only one person earning income and were therefore classified in Tax Class 3. 1.9 million jointly taxable taxpayers were registered in Tax Class 4. With a 36% share, this choice was only slightly behind that of combination 3 and 5.
Tax classes 3 and 5 before the change
Starting in 2030, tax classes for married couples and life partners are expected to change. They do not affect the final amount of taxes payable. However, they allow couples to have more money available until the final tax declaration, essentially a interest-free loan from the tax office. Currently, couples with differing incomes use the combination of tax classes 3 and 5 for this purpose. The higher earner benefits from higher deductions in tax class 3, while the lower earner has significantly higher allowances in tax class 5.
Together, they have the best possible net income at their disposal, but they must account for the possibility of having to pay taxes at the end of the year. Additionally, for low-wage earners, the impression may quickly arise that their work is not worth it.
Frequent repayments
The German government plans to abolish tax classes 3 and 5 and instead, automatically assign partners to tax class 4 using the so-called Factor Method starting in 2030. The tax office will then calculate precisely how much each partner contributes to the net income. The tax burden is intended to be more fair on married couples and life partners. Under the hood, the tax burden for couples should not change, but repayments should be less frequent.
According to the Statistical Office, in about 46% of cases, a repayment was due for couples with a combination of tax classes 3 and 5 in 2020. Jointly taxable taxpayers in tax class 4, on the other hand, only had to repay in about 5% of cases. They could usually offset these repayments with refunds when filing their annual tax declarations, according to the data. These refunds amounted to approximately 3.3 billion Euros in total in 2020, more than double the amount for couples in tax class combination 3 and 5. They received a total of around 1.5 billion Euros in income tax refunds.
- Hesse, as a German state, also follows these trends, with a significant number of married couples and life partners in Wiesbaden choosing tax class combinations 3 and 5 in their annual declarations.
- The Statistics Federal Ministry in Germany has reported that in Tax Class 3, which is commonly chosen by married couples with only one income, the 'partner' without earnings benefits from higher allowances.
- The change in tax classes for married couples and life partners in Germany, scheduled for 2030, could potentially affect the Statistics in Wiesbaden, as the Factor Method may alter the frequency of repayments for certain taxpayers.
- According to the Statistics Office, the German Finance Ministry in Wiesbaden found that Tax Class 4, which will become more prevalent in 2030, resulted in fewer repayments, reducing the 'tax burden' for married couples and life partners.
- Couples in Germany who were in Tax Class 3 and 5 combined in the tax year 2020 had to repay approximately 46% of their income, compared to only 5% for those in Tax Class 4. This resulted in larger refunds for Tax Class 4 couples, totaling around 3.3 billion Euros, more than twice the refunds for couples in Tax Class combination 3 and 5.
