Tax Classes in Germany and How to file Taxes

Tax classes in Germany

As per the law of the land, people residing in Germany have to pay taxes. As a worker, the state will take your Lohnsteuer (wage tax) from your company/recruiter, which, in turn, will deduct the given amount from your earnings. 

Lohnsteuer isn’t applicable in the case of those who happen to be self-employed. They have to pay the Einkommensteuer (income tax) though. In case you happen to be self-employed, you only have to pay this if your income surpasses the basic tax-free amount, post deducting pension and business costs. The Einkommensteuer is applicable for you—you manage your own business, or work as a freelancer notwithstanding.

What does it mean? 

It denotes that the different tax classes in Germany aren’t of much use to you in case you happen to be self-employed. But, you still need to know all about this. Why? Because your self-employed position may not be the same later, at some point, even as your position could be affected by some other circumstances. For example, if your spouse is doing a job, the Lohnsteuer will still be applicable, and if you provide work for anyone for your business then in such a case it will be applicable for a second time.  Against this, prior to your shift to the overseas destination learn all about the nation’s taxation system – especially if you will be working in the country.   Income tax and social security contributions, besides solidarity tax, VAT, and church tax are the chief taxes in the state.  

How to file your taxes?

Here are a few options of how one can file their taxes, in Germany.

a) File it online

The simplest and the most cost effective way to file your taxes,is using one of the online softwares nowadays. Also the benefit is that most of these tools provide support in English,and thus there is no language barrier. These apps not only allow one to file the taxes, but also provide tips on how to maximise refunds etc and as earlier mentioned earlier quite economical in their pricing (ranging between 30-40 Euros) Additionally, these softwares provide you with tips on how to maximize your tax refund. Also when one logs in, based on the numbers you feed in, they have a refund calculator tool which will give you an estimate of your refunds. You can then decide, depending on the results, whether you would like to sign up or not.
  1. WunderTax
  2. TaxFix
  3. LexOffice
  4. Kontist (For freelancers)

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b) Use A Tax Consultant  (Steuerberater)

If you are not sure how to file taxes, maybe are a freelancer or self-employed, have multiple income sources etc then probably it’s worth the effort to employ the services of a Tax consultant. The benefits of a consultant would be more accurate filing and hence the probability of getting higher refunds as well but the pitfall is that not only are they very hard to come by, but can be a costly affair. they could charge you anywhere from say 180 Euros onwards and depending on the complexity of the case, could go into the thousands as well. Also keep in mind that most of the Tax consultants, in the country are already overworked and understaffed, hence their hesitation in taking up new and small projects.   If you would like to search an advisor, then you can do so on Yourxpert. This portal, lists out all the advisors with their expertise, their ratings as well as their charges, so its transparent and easy to choose. They also have the possibility of having one-on-one private online chats or consultations over the phone
yourXpert: Need tax advice in Germany?  

c) Take up a  Lohnsteuerhilfeverein membership

One also has the possibilty of taking up a membership of a Lohnsteuerhilfeverein, which is essentially an organisation which assists people in filing their taxes, and is present in all towns and cities. Please keep in mind that they work in German and the fees for this association, is based upon your earnings and could range from 100 to 300 Euros annually. If you would like to take up this membership and search for the nearest one to you, then look here.

d) Use the official Online Form

If language is no barrier for you and you are comfortable with the tax system in the country, then the official online portal is ELSTER. Do keep in mind that use this only if you are comfortable using the platform, as forms and processes are very extensive and long and making frequent errors is not uncommon.

What Are Tax Classes? 

Coming back to the key topic, these are classes used in the European State to determine your Lohnsteuer as a person who is drawing a fixed wage, or if you have to pay Einkommensteuer as a self-employed person. Under the German Tax System, every worker in the nation is put into a Lohnsteuerklasse (tax class).   Which class you’re in will be decided by the amount of your income that you get as a worker.   Factors that will decide which of the six tax classes you will fall under  
  1. Marital position 
  2. Total number of kids  
  3. Respective tax allowances 
You will also get a different tax class in case you have many sources of income.  Which are the Different Tax Classes?  You will be placed in any of the below given six classes:  What are Tax Classes In Germany

Tax Class I 

Every single person will automatically get the tax class 1, which also happens to be the class that gives the least amount of taxes.   For example – those in tax class 1 will automatically receive income-associated expenses lump amount (Werbungskostenpauschale) of EUR 1,000, which will automatically be deducted from their yearly taxable earnings.  The present basic tax-free allowance (Grundfreibetrag) amounts to EUR 9,984. It denotes that if you take home less than this total per annum, you don’t have to pay any taxes.   Alternatively, those taking home more than EUR 450 per month, are usually placed in tax class 1 together with single, divorced, widowed, or separated people, and those subject to a restricted Einkommensteuer, besides those people whose other half lives abroad or stays permanently outside of the state.   When your earnings exceed this, the tax rate for this class is in the region of 17%. How high the tax rate is precisely will depend on the money you take home.  If you fall under this class, you cannot claim the relief earmarked for single parents or child allowances.  

Tax Class II 

In case, as a single parent, you make more than EUR 450 per month, you will possibly find yourself in this specific tax class. But, if this is your class, you will not be automatically assigned and will have to present an application for the purpose. In order to be entitled, it’s mandatory that you reside in the same house as your child. 

Tax Class III 

Restricted to married couples with both partners residing in the state, this class has the lowest taxation and twice the allowance. The minimum monthly wage required to belong is once more EUR 450. To belong to this tax class, it’s compulsory that one member of the wedding is assigned to tax class V.  

Tax Class IV 

An alternative tax class for the wedded couples who don’t come in the III/V bracket, tax class IV serves to stay away from the gendered pay inequality between the members of the two sexes—male and female. The lower wages for women, in some situations, denote they have to pay more taxes. Tax class IV attempts to improve the situation via excluding some extra payments.  You will switch to the tax class IV / IV directly after you register your marriage OR as soon as your spouse comes to Germany (and she/he registers her/himself at city hall).

Tax Class V 

Married workers with spouses from the tax class III automatically find a place in this class. This class covers some of the highest deductions of all the tax classes and covers practically no annual allowance. The tax load is decreased by the couple’s combination with tax class III. 

Tax Class VI 

This special tax class assigned only to the workers with two or more jobs is used to tax the earnings from any jobs that are separate from their “central” job. As per tax class VI, there is no basic tax-free amount or allowances that can be deducted from the revenue from a second job taxed. Even though workers may decide themselves which job they’d like to dispatch to tax class 6, it would be better if they hand over this class to the job which gives the least money.  Since the tax class is earmarked for the persons who have different sources of income, the class itself is officially related to that second job or source of income. The same does not include a basic allowance or any pension or child allowances. However, it is possible to combine this tax class with other classes, on the basis of the state of affairs.   

What tax class do I belong to? 

In case you have no idea whatsoever as to which tax class you belong to, check your pay slip. You’ll also find it displayed on the Lohnsteuer certificate which you’ll get once a year from your recruiter/firm.   Tax Classes for the Married Couples  Marriage comes saddled with numerous crucial decisions. You’ll have to decide the right tax class for you both. If you are married and have kids, you are at an advantage. German tax system prioritizes parents. It’s important that married couples cautiously choose between the different class-combinations, to select the best class. Couples will automatically get tax class IV once wedded. Still, they then have the choice of merging classes III and V. 

Changing Tax Classes: Know How It Works! 

You could find yourself in a state where you require changing to a new tax class even as these are some of the situations in which it could crop up:  Tax classes change when: 
  1. you tie the knot  
  2. you separate or divorce from your other half 
  3. your lose your other half to death  
  4. you are single and have a kid 
  5. you grab a second job 

Changing your tax class in Germany –when to do it? 

The majority of migrants have a problem when they tie the knot, or if they are married, but shift base to the state unaccompanied. Divorce, separation, the birth of a child with full custody, or a change in service or earnings could be some other major factors behind a request for a tax class change.   In these specific situations, the partner presenting the request will have to sign the form single-handedly. The death of one partner will automatically be shown in a change of tax class.   Changing your class is rather easy. You can change it many times even through one year on the basis of your shifting circumstances. Change your tax class by presenting a written request to your concerned tax office. 

What personal details to provide for change in your tax class? 

Your: 
  1. Name and maiden name 
  2. Date of birth 
  3. Marital position 
  4. Place of dwelling 
  5. Tax number 
  6. Tax identification number 

What is the most regular tax bracket for non-residents? 

The majority of non-residents come into the tax brackets I or II. In case both spouses are doing a job in Germany, the tax bracket number IV may be employed.  Want to minimize your taxes? Know how to do it!  
  1. Tax declaration: If you are a self-employed person, file an annual tax declaration. For any assistance and guidance, go to a “Steuerberater”. 
  2. Tax refund: Even if you have a job or don’t have one, file for a tax return. If you have not been in the state for a compete tax year you could be entitled to a tax refund. 
In order to submit your tax return and even only to work out the estimates for what you do, or will owe in your capacity as a freelancer in the country, employ the services of a professional tax advisor or “Steuerberater”. Do keep in mind that finding a Certified Steuerberater is very difficult in these days, as most are overworked and do not take up new projects. The other option is to go digital and use the following apps:   Wundertax*  Taxfix*  LexOffice* (if you also need accounting)  Kontist* (if you need banking as well)  Now that you have probably understood the Tax classes in the country, here are a few FAQs on filing taxes in general

Who is required to file taxes in Germany?

In general, anyone who is a resident of Germany for tax purposes is required to file taxes in Germany. This includes both German citizens and foreign nationals who live in Germany. Nonresidents may also be required to file taxes in Germany if they have income from German sources.

How do I determine my tax residence in Germany?

Your tax residence in Germany is determined based on the length of time you spend in the country and the purpose of your stay. If you spend more than 183 days in Germany in a calendar year, or if your main place of abode is in Germany, you are considered a tax resident for the purpose of filing taxes.

What is the deadline for filing taxes in Germany?

The Financial year in Germany is the same as the calendar year i.e January to December. The filing deadline itself has a few factors which need to be considered, as follows : a)Mandatory tax declaration: In this case, one has to file the taxes between Jan 1st and July 31st. For example, if you want to file for 2021, then you can file this up to July 31st, 2022. One can apply for an extension once with the local tax office (Finanzamt), in this case. b)Voluntary tax declaration: In this case one, can hand in their tax declaration and apply for refunds for up to four years. So for example in 2022, you are allowed to declare your taxes from 2018 onwards. c)Through a tax advisor or Lohnsteuerhilfeverein: If one is using professional help, then one is given a little bit more leeway. In this case, one can file till the end of February of the following year, which means for example for the tax year 2021, the advisor can file up to February 28th 2024.

What documents do I need to file taxes in Germany?

To file taxes in Germany, you will need to submit a tax return form and any supporting documents, such as proof of income and proof of expenses. You may also need to provide identification and other documentation, depending on your specific circumstances.

Can I file my taxes online in Germany?

Yes, it is possible to file your taxes online in Germany. The process for filing taxes online is generally faster and more convenient than filing a paper return. To file your taxes online, you can use tools such as TaxFix, WunderTax, Kontist or LexOffice.

How to file my taxes online?

  1. Go to the Wundertax/TaxFix/Kontist (for freelancers) website and create an account.
  2. Gather all of the necessary financial documents, such as your income statement, tax assessment notice, and any other documents related to your income and deductions.
  3. Log in to your account and upload your financial documents.
  4. Fill in your personal information, including your name, address, and tax identification number.
  5. Enter your income and deductions into the platform. The platform will then use this information to calculate your taxes.
  6. Review the tax forms generated and ensure that all of the information is correct.
  7. Retrieve your ELSTER-Zugangsdaten (unique login credentials issued by the German Federal Tax Office)
  8. Submit your taxes through the WunderTax/TaxFix platform using your ELSTER-Zugangsdaten.
  9. Keep a copy of your submitted tax return for your records.
Note: You should always double-check the information and forms with the German tax office regulations and requirements, if you have any doubts or questions, it’s better to consult with a tax advisor.

Can I get a tax refund in Germany?

It is possible to get a tax refund in Germany if you have paid more taxes than you were required to pay based on your income and expenses. To request a tax refund, you will need to file a tax return and include any relevant documentation. The German tax authorities will review your request and determine if you are eligible for a refund. If approved, the refund will be paid directly to your bank account.

What is the tax rate in Germany?

The tax rate in Germany varies depending on your income level and other factors. The tax rate for income up to a certain threshold is known as the “tax-free allowance,” or “tax-free amount.” Income above this threshold is subject to progressive tax rates, which means that the tax rate increases as your income increases. The exact tax rates and tax-free allowances vary depending on your specific circumstances, such as your level of income, your marital status, and whether you have children.

What types of income are subject to tax in Germany?

In general, most types of income are subject to tax in Germany, including salary and wages, self-employment income, and investment income. Some types of income, such as certain types of capital gains, may be taxed at a lower rate or may be partially or fully exempt from tax.

Can I claim deductions or credits on my taxes in Germany?

Yes, it is possible to claim deductions and credits on your taxes in Germany in certain circumstances. Deductions can reduce the amount of income that is subject to tax, while credits can directly reduce the amount of tax you owe. Some common deductions and credits in Germany include deductions for charitable donations, business expenses, and health insurance premiums, as well as credits for things like education and child care.

What happens if I don’t file my taxes in Germany?

If you fail to file your taxes in Germany, you may be subject to penalties and fines. The specific penalties and fines that apply will depend on the circumstances of your case, such as the amount of tax you owe and the reason for your failure to file. In some cases, you may be able to avoid or reduce penalties by demonstrating that you had a valid reason for not filing your taxes.

Is it possible to get help with filing my taxes in Germany?

Yes, it is possible to get help with filing your taxes in Germany. There are several resources available to assist you, including tax preparation software (TaxFix, WunderTax etc), tax advisors, and the German tax authorities (Elster). You can also seek help from organizations that provide this service for a fee like a Lohnsteuerhilfverein or you can use YourXpert to help you find a Steuerberater,and file through them.
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