The finance minister is proposing to eliminate the tax brackets that are popular with married couples. In the future, taxation should take place automatically depending on income distribution.
Federal Finance Minister Lars Klingbeil (SPD): âThoughts of justiceâ as one of the arguments for the planned reform. Photo: Fabian Sommer/dpa
Federal Finance Minister Lars Klingbeil wants to reform tax classes III and V in order to achieve a âmodernization of the wage tax deduction for married employeesâ.
The new procedure is intended to make it possible to reduce the number of mandatory assessments for married employees.
Klingbeil's initiative is politically sensitive. Such a reform is not provided for in the coalition agreement.
Berlin. Federal Finance Minister Lars Klingbeil (SPD) wants to reform the tax brackets. Tax classes III and V, which are popular among married couples, are to be abolished. This emerges from a paper from the Federal Ministry of Finance that is available to Handelsblatt. It describes various tax simplifications that the federal and state governments are currently negotiating.
The paper states that tax classes III and V should be transferred to the âautomated factor procedureâ. It is about a âmodernization of the income tax deduction for married employeesâ.
According to the assessment, this is also a simplification. The new procedure offers âthe possibility of reducing the number of compulsory assessments for married employeesâ. This relieves the burden on taxpayers and the tax offices.
Advance with potential for conflict
Klingbeil's initiative is politically sensitive. Such a reform is not provided for in the coalition agreement. When the traffic light coalition and the then Finance Minister Christian Lindner (FDP) presented such a bill in the summer of 2024, the Union sharply criticized it. This is now likely to be loud about Klingbeil's plan, especially since the SPD finance minister recently brought up the abolition of spousal splitting.
Spouses and life partners can currently choose whether they both want to be classified in tax classes IV or whether one - the one with the higher income - uses class III and the other uses class V. From the point of view of many married couples, this offers advantages.
The tax classes allow the financial advantage of spousal splitting to be taken into account in the monthly tax deductions. This is primarily about the basic allowance, i.e. the portion of income on which no taxes are due. This is currently 12,348 euros. The partner in tax class III benefits from both allowances, i.e. a total of 24,696 euros, which remains tax-free. In return, the tax burden in Class V is particularly high.
The tax class combination III/V assumes that the partner in class III contributes around 60 percent of the joint income and the partner in tax class V contributes around 40 percent. If the income differences are even greater, the Class III spouse may pay too little tax each month. Therefore, married couples and life partners with this combination are obliged to submit a tax return. Any taxes that may have been underpaid must then be paid.
Is the factor method simpler and fairer?
Therefore, abolishing tax classes III/V would not in itself be a tax increase. Because taxes that are paid too much or too little are ultimately offset in the declaration. However, there can be a disadvantage with state benefits such as parental allowance, which are based on the monthly salary. In addition, a married couple could potentially experience a liquidity disadvantage during the year.
Critics, however, consider the III/V combination to be unfair. The Federal Ministry of Finance also justifies the possible reform in the paper with an âidea of ââjusticeâ. In many families, women earn less, for example because they work more part-time. They therefore choose tax class V and have a double disadvantage: they have even less of their already lower salary each month because the tax deductions are higher than in tax class III. This also reduces the incentive to work more.
According to the ideas in the Federal Ministry of Finance, the factor method should be used for partners in the future. With this procedure, the monthly tax deductions are adjusted to the actual distribution of income between the two partners. This means that annual tax payments or refunds should no longer be required.
Therefore, from the point of view of Klingbeil's officials, the reform would also be a contribution to tax simplification. Negotiations are currently underway between the federal and state governments about simplification measures. They go under the heading âautumn packageâ and should be decided on this year if possible.
However, the paper makes it clear that the measure is controversial. Apparently the Union-governed countries have already expressed concerns. âThe measure is decided politically,â it says in the paper. The Federal Ministry of Finance also writes that it initially wants to include the proposal in the draft law on tax simplifications.
