Advance from the Ministry of Finance: What could change tax brackets for couples

Tax classes III and V are to be converted to the “automated factor method”, according to finance ministry circles. This means that spouses and civil partners would be taxed automatically depending on their income distribution. If the change is made, many people who are assessed jointly will no longer have to submit a tax return.

The Handelsblatt first reported on the plans that the federal government is negotiating with the states. The ARD capital studio also found out about the project from finance ministry circles.

The Ministry of Finance says it wants to reduce bureaucracy and simplify tax returns for citizens with the “Tax Simplification Act” in 2027. This step would also relieve the burden on the tax authorities.

The combination of tax classes III and V only very rarely corresponds to the actual earnings ratio between couples and thus the tax to be paid, according to the Ministry of Finance. This has to be offset through the tax return.

So far, spouses and life partners can choose whether they both want to be classified in tax class IV (the so-called factor method) or whether the one with the higher income uses class III and the other uses class V. In tax class III, the monthly tax deductions are lower than in class V.

The Ministry of Finance argues that abolishing tax brackets will make taxation fairer. The partner with lower earnings would receive new work incentives. In many families, women earn less, for example because they work part-time more often - and with tax class V they would have had higher monthly deductions.

After abolition, fewer employees would be required to file a tax return. Due to the combination of tax classes III and V, around twelve million spouses and life partners have so far had to submit a tax return.

This does not change how much income tax the couple pays together. However, the tax burden is distributed differently between both partners.

Such a reform is not provided for in the coalition agreement. When the traffic light government presented such a bill in 2024, there was sharp criticism from the Union. Bavaria's Finance Minister Albert Füracker (CSU) also criticized Klingbeil's initiative: "A clear no to ideology-driven paternalism for married couples," Füracker told the Handelsblatt. Bavaria is vehemently committed to maintaining the current income tax brackets.

The financial policy spokesman for the Union parliamentary group, Fritz Güntzler (CDU), admitted that the factor method makes sense and could be made easier through automation. But tax classes III and V do not have to be abolished. It is therefore unclear whether Klingbeil's plans will be implemented.