What happens if both my partner and I switch to tax class IV?
August 17, 2023 | 40,00 EUR | answered by Yvonne Schreiber
Dear tax advisor,
My name is Erika Endres and I have a question regarding tax brackets. My partner and I are currently both classified in tax bracket III, as we have assumed that this is the most advantageous option for us. However, we are now considering whether it would be beneficial for us to both switch to tax bracket IV.
Our situation is as follows: My partner earns significantly more than I do and falls into the higher tax bracket. I work part-time and have a lower income. Since we are both working, we have chosen tax bracket III so far in order to benefit from tax advantages.
Our concern, however, is that we may be paying too much income tax and may have to make a high tax payment at the end of the year. We are wondering if it would be financially advantageous for us to both switch to tax bracket IV and if it is even possible to be classified together in tax bracket IV in this scenario.
We would be very grateful if you could help us with this decision and provide us with possible solutions. Are there alternative options that would be more tax advantageous for us? What are the advantages and disadvantages of switching to tax bracket IV for us as a couple?
Thank you in advance for your assistance.
Sincerely,
Erika Endres
Dear Mrs. Endres,
Thank you for your inquiry regarding tax classes. I am happy to assist you in making your decision and to show you possible solutions.
In your situation, where your partner earns significantly more than you and both of you are working, it may indeed be wise to consider switching to tax class IV. In tax class III, the partner with the higher income benefits more from tax advantages, while the partner with the lower income benefits less and may have to make a tax payment at the end of the year.
In tax class IV, on the other hand, both partners would be taxed individually, which could result in overall less income tax paid and possibly a tax refund at the end of the year. It is possible for you as a couple to be classified in tax class IV if both partners are employed and not in a registered civil partnership.
There are also alternative options that may be more advantageous for you tax-wise. For example, one option could be for the partner with the higher income to switch to tax class IV and the partner with the lower income to switch to tax class V. This way, the partner with the higher income would pay less income tax and the partner with the lower income would not have to make a tax payment.
However, switching to tax class IV also has its disadvantages. On one hand, you may have less net income available monthly as the tax advantages may not be as significant. On the other hand, you may have to make a tax payment at the end of the year if the tax burden has increased due to other income sources, such as capital gains.
It is important that you carefully examine your individual situation and consider seeking advice from a tax consultant to find the optimal solution for you. I recommend contacting a tax advisor to analyze your tax situation together and make the best decision.
I hope that this information has been helpful to you. If you have any further questions, please feel free to contact me.
Sincerely,
Yvonne Schreiber
