Tax Brackets – Explained Simply

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Overview of Tax Brackets

There are a total of six different income tax brackets in Germany. Which tax bracket applies depends, among other things, on marital status, the number of children, or multiple jobs. The correct tax bracket determines how much income tax is deducted from your monthly salary.

Tax Class I – For Single Individuals

Tax Class I applies to single, divorced, permanently separated, or widowed individuals without children. It is the most common tax class for single employees.

Tax Class II – For Single Parents

Single parents with at least one child can use Tax Class II. This tax bracket includes an additional tax credit designed to reduce the financial burden on single parents.

Tax Bracket III – Fewer Deductions for Higher Incomes

Tax bracket III is often chosen by married couples when one partner earns significantly more than the other. This results in lower monthly tax deductions for the higher-earning partner.

In most cases, tax class III is combined with tax class V.

Tax Class IV – For Married Couples with Similar Incomes

Married couples or registered domestic partners with similar incomes are normally automatically assigned to tax class IV. This combination ensures a balanced distribution of tax deductions.

Tax Bracket IV with a Factor – Fairer Distribution

Tax Bracket IV with a factor is a special option for married couples with different income levels. The so-called factor method distributes the estimated annual tax as accurately as possible between both partners on a monthly basis.

This often helps avoid large additional tax payments when filing the tax return.

Tax Class V – Supplement to Tax Class III

Tax Class V is usually used in conjunction with Tax Class III. It generally applies to the partner with the lower income. Here, the monthly tax deductions are significantly higher.

Tax Class VI – For a Second Job

Anyone who has another taxable job in addition to their main job is assigned to Tax Class VI for the second job. There are no tax allowances in this tax class, which is why the highest tax deductions apply.

Which tax class applies after marriage?

After marriage, spouses are automatically assigned to tax class IV. However, couples can choose a different combination if it is more financially advantageous.

Possible combinations are:

Tax Brackets III and V

This combination is often suitable when one partner earns significantly more than the other.

Tax Bracket IV with a factor

This option provides a more equitable monthly distribution of the tax burden and can reduce the need for back payments later on.

Changing Tax Brackets – When Is It Possible?

A change in tax bracket is possible in various situations, for example:

• Marriage
• Separation
• Death of a spouse
• Starting a new job
• Additional employment

Since 2020, the tax bracket can also be changed multiple times a year.

Effects of the tax bracket

The tax bracket affects the amount of monthly payroll tax deductions, but not the final annual tax liability. This is calculated only when filing the income tax return.

Depending on the situation, this may result in a tax refund or additional payment later on.

In addition, the tax bracket affects certain social benefits, for example:

• Unemployment benefits
• Parental leave benefits
• Sick pay

Which tax bracket is right for which situation?

Tax bracket I

Suitable for single employees without children.

Tax bracket II

For single parents with a tax credit.

Tax brackets III and V

For married couples with a significant difference in income.

Tax Class IV

For married couples with similar incomes.

Tax Class IV with a factor

For couples who want to avoid back payments.

Tax Class VI

For employees with a second taxable job.

Our Recommendation

Choosing the right tax bracket should always align with your personal life and income situation. The right combination can help you receive a higher net monthly income and avoid having to make additional payments later.

Individual consultation is particularly recommended in cases of marriage, a job change, or multiple jobs.

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