News - Germany

Germany - March 2010

Germany: New wage tax bulletin from Ministry of Finance for tax deductions in 2010

The bulletin of the Ministry of Finance concerns wage tax class combination and new "Faktorverfahren" for wage tax deductions for the year 2010

In Germany, for income tax purposes, there are six wage “classes”. Every employee will have a tax card and will be subject to a wage tax class. The applicable class will vary according to a variety of factors, including whether, for example, an employee is single, married or has a number of employments.

German income tax law allows spouses, who are not permanently separated and who are subject to German income tax without any limitations, to combine wage tax classes III, IV or V, in the combinations III/V or IV/IV.

The bulletin provides information on which combination is most beneficial for the spouses in certain situations, depending on the spouses' income.  From 2010, a new "Faktorverfahren" will give a precise wage tax withholding ratio, depending on the individual income of each spouse, by calculating best wage tax class combination for those individuals.  A formal application to the tax office must be made to obtain this precise ratio, which must also set out the approximate gross salary of both spouses in the year.

Resources

German Federal Ministry of Finance: Bulletin dated 21.10.2009

For further information or to discuss any of the issues raised, please contact Joachim Menz (joachim.menz@keller-menz.de) on +49 89 24 22 30 0.

This article was produced by, and re-produced with kind permission of, our correspondent firm in Germany, Keller Menz Rechtsanwälte.  www.keller-menz.de

Keller Menz