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The wage tax deduction at source secures the state tax revenue and everyone pays it. Really everyone? Who, how and when must pay the income tax and which income tax class is the most optimal for you are briefly described below.
You are an employer and have to pay the income tax for your employees, click here for more information.
First of all: not everyone pays income tax, only employees are liable to income tax, i.e. persons who are not self-employed. The income tax does not differ from the income tax, it is a collection type of the income tax.
The amount of income tax depends on the one hand on earnings and on the other hand on the tax class.
Although marital status and certain allowances are already taken into account when deducting income tax, a tax return is still worthwhile in most cases. In 2013, around 87% of employees who submitted a tax return received an average tax refund of € 935. Is the tax return too complicated and opaque for you? We can help you and you can also deduct the tax consultancy costs from your tax bill!
There are a total of six tax categories in Germany, and we will show you what effect they have:
Would you like to calculate your net income quickly or compare it in the various tax coffers? Why not use the free income and wage tax calculator of the Federal Ministry of Finance!
Tax Class 1
Every employee who earns more than €450 per month is regularly assigned to this tax class. Tax class 1 grants you the lowest tax allowances, only the employee lump sum of €1,000 and the basic tax allowance, which is adjusted annually, are taken into account - you can see the amount of this allowance here.
Tax Class 2
This tax class is particularly worthwhile for single parents with a child in the same household. This is because, in addition to the employee lump sum and basic allowance, a relief amount is also deducted from the tax burden. Provided you are neither married nor living in a marriage-like partnership.
But beware, you will only be placed in tax class 2 upon application - this does not happen automatically!
Tax Class 3
This tax class can only be chosen by married taxpayers and leads to the lowest tax deductions during the year! You choose tax class 3 and your spouse tax class 5. This tax class is recommended if one spouse has a considerably higher income than the other.
The tax class combination III/V is designed in such a way that the sum of the tax deduction amounts of both spouses roughly corresponds to the expected annual tax, if the spouse classified in tax class III achieves approx. 60 percent, the spouse classified in tax class V approx. 40 percent of the joint earned income. In the case of different ratios of the common earned income, the relatively low wage tax deduction can lead to back tax payments.
But beware: although the spouse in tax class 3 receives double the basic allowance and other allowances, the spouse in tax class 5 receives none. Nevertheless, this is the best way to optimise net income.
Tax Class 4
Tax class 4 is also only accessible to married taxpayers. In contrast to tax class 3, both spouses must choose it. Advantages are to approximate the tax burden of both spouses to your remuneration and to avoid back tax payments at the end of the year.
In the end, the alternatives tax class III/V and IV/IV differ only at the time of payment of income tax. The III/V combination has a positive effect on the monthly household income, but you must expect a possible additional payment at the end of the year. By choosing the IV/IV alternative, one spouse will have to pay higher income tax deductions. If these exceed the actual tax burden, it will be offset at the end of the year by the income tax refund.
Tax Class 5
This tax class is the counterpart to tax class 3 and represents the worst alternative when considering the monthly net income. Therefore, this class should ideally be chosen by the spouse with the lower income.
At the end of the year, however, within the tax return, this choice is often reflected in a tax refund, as long as the optimisation of your income has been optimally carried out.
Tax Class 6
Tax class 6 is usually only used for other jobs in addition to the main job and represents your "second tax class". Regularly thus for further Nebenjobs. Here no tax allowances are granted and the tax deduction takes place from the first euro of income.
In the best case, you assign this tax class to the activity with which you earn the lowest income.
Tax classes can be changed at your tax office once during the calendar year, at the latest by 30 November. The application for a change of tax class for spouses must be submitted to the tax office by both spouses together.
Unfortunately, there is no final answer to the question of which combination is more favourable. The question can ultimately only be decided according to your personal circumstances and interests. We will be happy to help you optimise your monthly household income - just give us a call now or send us an e-mail!