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Tax Classes in Germany (steuerklassen)

One of our clients with staff assigned in Germany wanted more information about the different tax classes in that country, and how it affected their employees.  Referred to as steuerklassen, tax classes set the income tax rate based on marital status, a working spouse or dependent children.  The different classes also affect the amount of unemployment benefits, social security and leave.

Once the tax class is known and registered with tax authorities, then the tax class can be used to calculate and withhold tax from the monthly payroll.  The employee has to register personally with German authorities, under their current circumstances.  If their situation changes, then the tax class can be amended and reflected in payroll, with any incorrect withholding accounted for in the year-end tax return.

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The Six German Tax Classes

There are six different tax classes in Germany, and here is a summary of each, keeping in mind that two spouses might have different tax classes depending on circumstances:

Class I

The first class is for unmarried workers, or for those whose spouses live abroad, don’t have German resident status or have lived separately for a long time.   

It also applies to widows/widowers (more than one year), those who are divorced or are in a civil partnership.

Class II

Class II is the same as Class I, but applies to single parents of a minor, or those entitled to government assistance.

Class III

The third tax class is for married workers that live with their spouse, or to widows/widowers less than one year.

Class IV

Similar to Class III, this class is also for married workers in a common household who both have a similar level of employment income.

Class V

For spouses of workers that are under Class III, Class V could be applied to the spouse with the lower income.

Class VI

For workers with two or more jobs and income sources, the sixth tax class carries the highest tax rates.

Note: different combinations of these classes can be used for couples, depending on relative income levels, to maximize tax savings.

How Does Shield GEO Help Our Clients with Tax Classes in Germany?

Because of the complexity of the German tax class system, Shield GEO assists clients in understanding the right tax class for them, with the assistance of our local experts in Germany.  We help evaluate the best combination of tax classes for married couples, and make sure that the withholding is correct in the payslip for the corresponding class and tax rate.

Also, when there are changes in circumstances, our local partner will make the necessary adjustments to the tax class.  For example, if an employee is in tax class I, but then has a change in marital status or a civil partner begins work in Germany, that requires a new tax class.  This is one way that Shield GEO makes international employment simple for our clients in over 90 different countries, including payroll, immigration and tax compliance.

Need help employing in Germany? Get in touch.

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