German Tax Classes (Steuerklassen) Explained for Expats

A Steuerklasse is not a tax rate and not a category of taxpayer. It is a setting your employer’s payroll uses to work out how much wage tax (Lohnsteuer) to hold back from each payslip and forward to the tax office. Germany has six of them, numbered I to VI, and Section 38b of the Income Tax Act (Einkommensteuergesetz, EStG) says which one applies to whom.

Mechanically it works through allowances. The class tells payroll which tax-free amounts it may build into the monthly projection: the basic allowance (Grundfreibetrag), which is €12,348 for 2026, the employee lump sum (Arbeitnehmer-Pauschbetrag), the special-expenses lump sum and the pension-expenses allowance (Vorsorgepauschale). A class that carries a lot of allowances withholds little each month. A class that carries none withholds a lot.

That is exactly why the class matters enormously for your monthly cash flow and almost not at all for what you actually owe. Your employer never calculates your real income tax. It only produces a monthly estimate, and the tax class decides how generous or how cautious that estimate is.

Class I is the default for single people: unmarried, divorced, widowed beyond the special year following a spouse’s death, permanently separated, or married to a spouse living outside the EU and EEA. Class II is class I plus the relief amount for single parents (Entlastungsbetrag für Alleinerziehende). It requires at least one child registered in your household for whom you receive child benefit (Kindergeld), and no other adult sharing the household economy. Class II is not granted automatically, you apply for it.

Classes III, IV and V exist only for married couples and registered civil partners where both live in Germany and are not permanently separated. Class III carries a doubled basic allowance, class V carries none because the allowance sits with the partner in III. Class IV treats each partner as though they were single. After a wedding the registry office reports the marriage and both partners are placed in IV/IV automatically. Everything else happens only on application.

Class VI is the one nobody chooses. It applies to your second job and every further job, and it contains no allowances at all, because those are already used up by your first employment. Class VI also kicks in as a fallback when your employer cannot retrieve your wage-tax data, typically because your tax identification number (Steuer-Identifikationsnummer) is missing. For new arrivals this is a common and expensive false start: your first payslip looks dramatically worse than expected. Once you supply the number, payroll corrects it.

IV/IV is the starting state. Both partners are processed as though single, each bringing their own basic allowance. This fits well when the two salaries are similar: the monthly deduction lands close to the real annual tax, and the tax return usually ends in a small refund or a small payment.

III/V shifts allowances between the partners. The partner in III receives the doubled basic allowance and pays strikingly little each month; the partner in V receives none and sees a shocking deduction rate on what is often the smaller salary. Together the couple keeps more net cash per month when the two incomes are far apart. The closer the salaries are, the less the combination gains and the bigger the risk of a back payment.

IV/IV with a factor is the calm middle road (Section 39f EStG). The tax office calculates a factor from your two expected annual salaries and applies it to the class IV withholding of both partners. Each of you then pays roughly the share of the joint tax that your income actually accounts for. The deduction sits closest to the eventual annual tax; the trade-off is that you have to apply for the factor and it is granted for a limited period at a time.

One forward-looking note: lawmakers have agreed in principle to fold classes III and V into the factor method in future. The changeover has been announced but is not yet in force. If you are planning long term, check the current statement from the Federal Ministry of Finance rather than older guide articles.

Married couples in Germany are jointly assessed by default, using the splitting method: your combined taxable income is halved, the tariff is applied to that half, and the result is doubled. That outcome depends only on your combined income. Which tax classes appeared on your payslips during the year makes no difference to it.

So a tax class is nothing more than a prepayment schedule. Whatever was over-withheld comes back as a refund. Whatever was under-withheld falls due as a back payment. III/V does not make you richer over the year, it pulls money forward. That can still be the right call, for example if you need liquidity for running costs, but it is a question of timing, not of amount.

There is one genuine exception worth knowing. Wage-replacement benefits are calculated from your net pay, so they follow whichever tax class applied in the relevant reference period. This covers parental allowance (Elterngeld), sick pay (Krankengeld), short-time work allowance (Kurzarbeitergeld) and unemployment benefit (Arbeitslosengeld), among others. Couples expecting a child therefore often move the parent who will take the leave into class III well in advance. The deadlines and reference periods are strictly regulated and differ per benefit, so clarify this with the paying authority beforehand rather than when you file the claim.

The III/V deduction rests on an assumption: the model expects the partner in class III to earn the lion’s share of the joint income while the partner in class V contributes comparatively little. When that assumption is wrong, because both of you earn solidly or because the smaller salary rose during the year, the couple has under-withheld across twelve months. The gap then shows up in an assessment notice rather than on a payslip.

On top of that comes an obligation many people do not see coming: couples using III/V or the factor method must file an income-tax return. This is compulsory assessment under Section 46 EStG, with a filing deadline, not an optional extra. For many new arrivals a reminder letter from the tax office is the first contact with this rule, and late-filing surcharges are entirely avoidable.

In practice: if you choose III/V, do not treat the extra monthly net as a pay rise, set part of it aside. If that uncertainty bothers you, IV/IV or the factor method are the calmer choice. Our German net-salary calculator lets you run the same gross salary through each class and compare the monthly differences side by side before you decide.

Married couples and registered civil partners can change their combination during the year and are no longer limited to a single change per calendar year. A change takes effect from the month after the tax office processes it. For it to still affect the current year, the application has to arrive in good time before year end; Section 39 EStG sets 30 November as the cut-off.

Changing class is a form, not an appointment. Married couples file the "Antrag auf Steuerklassenwechsel bei Ehegatten oder Lebenspartnern" through ELSTER, the tax administration’s own online portal. You need a free account and a one-time activation by post, so allow a few days of lead time. Class II has its own application, the "Versicherung zum Entlastungsbetrag für Alleinerziehende".

Events that should trigger a review of your class: marriage, separation, the birth of a child, one partner losing or starting a job, a significant salary change, planned parental leave, and taking on a second job. Payroll notices none of this by itself, and the tax office only acts on your application. Once the change is processed, the new class flows into payroll automatically through the electronic wage-tax records (ELStAM), so you do not need to send your employer anything.