Income tax class combination during personal bankruptcy
May 23, 2011 | 50,00 EUR | answered by Michael Herrmann
Dear Sir or Madam,
My future husband has been in private insolvency since May 2010 (to our knowledge, he has not yet entered the well-behaved phase). His gross earnings are 2,300 euros, with a company car tax of 216.14 euros (of which the employer taxes 101.00 euros flat-rate), and ongoing wage conversion of 75.00 euros. With tax class 1, Catholic, and a child allowance of 0.5, the currently garnishable deduction is 137.05 euros.
I also earn 2,300 euros.
We are getting married on July 1, 2011 and plan to have a child together in the near future. In order to receive a higher maternity allowance and later a higher parental leave benefit, wouldn't it be advisable for the wife to choose tax class 3 and the husband to choose class 5?
Is this advisable in our case, considering my fiancé's insolvency? How will this affect the annual tax return? Should we file separately or jointly? Will I possibly have to pay a lot back and my fiancé get a refund, but then have to give it to the insolvency administrator?
Thank you in advance for your information!
Sincerely,
Dear questioner,
First of all, thank you for your inquiry, which I would like to answer based on the information you provided and in the context of your commitment to an initial consultation. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can influence the legal outcome.
When a married debtor switches to tax class V, this results in high income tax deductions for them. These deductions reduce the portion of their salary that can be garnished, i.e., their net income, and at the same time increase the – often not garnished – repayment claim in the annual income tax return.
The creditor can file a modification request to the enforcement court referring to the Federal Court of Justice (4.10.05, VII ZB 26/05).
If the debtor chose a less favorable tax class before the garnishment with the intention to disadvantage the creditor, the calculation of the garnishable amount can already treat their income as if it were in the more favorable tax class in the year of garnishment.
If they chose a less favorable tax class after the garnishment or retained it for the following calendar year without the intention to disadvantage the creditor, this applies even if there is no objectively justifiable reason for this choice.
This also applies if after marriage only tax class V can be chosen. Therefore, it is advisable to choose the tax class combination IV/IV, possibly with the splitting procedure, corresponding to the income.
In the context of parental allowance, tax class III is recommended for the wife. Whether this represents a justifiable reason for choosing this tax class combination in terms of creditor protection is not something I, as a tax advisor, can assess. This requires legal advice, which tax advisors are not authorized to provide.
The choice of tax class does not affect the ultimately payable income tax. The higher the income tax deduction for your husband, the more will be credited to him during the assessment. A tax refund determined by a separate assessment for this spouse is, of course, available for debt repayment.
Ultimately, the results are always quite comparable, as your husband must use excess income tax for debt repayment if the insolvency plan requires it, or a higher garnished income arises with a lower income tax burden.
The essence of these considerations is the influence of your parental allowance through the choice of tax classes. The permissibility in the context of the insolvency proceedings is not of a tax nature and must be separately advised on.
I hope that these explanations have provided you with a sufficient overview of the situation within the scope of your commitment and this initial consultation.
Yours sincerely,
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax advisor
