The factor method is an alternative to the conventional combinations of income tax classes IV/IV or III/V for spouses or registered partners (in short: couples or partners). To use the factor method, both partners can apply for tax class IV with factor. In this procedure, the tax advantage of spousal splitting is distributed to both partners according to their respective shares of the total income. In the following, we will introduce you to the factor method in more detail.
The following options are currently available when choosing income tax brackets: Couples who are both employed and not permanently separated belong to tax class IV. If both partners earn the same amount, each pays the same income tax according to tax class IV. However, in the case of unequal incomes, the tax class combination IV/IV often leads to too much income tax being withheld for couples. In these cases, it may make sense to choose tax classes III and V instead.
Example: Partner 1 earns 40,000 euros gross per year and partner 2 earns 20,000 euros.
| The annual income tax for | for tax classes IV/IV | for tax classes III/V |
|---|---|---|
| Partner 1 | 5.840 € | 2,610 € (tax class III) |
| Partner 2 | 1.131 € | 3,363 € (class V) |
| Together | 6.971 € | 5.973 € |
| Expected annual tax liability | 6.672 € | 6.672 € |
| Expected refund | 299 € | |
| Expected additional payment | 699 € |
| Monthly net wage after taxes | for tax classes IV/IV | for tax classes III/V |
|---|---|---|
| Partner 1 | 2.847 € | 3,116 € (tax class III) |
| Partner 2 | 1.572 € | 1,386 € (class V) |
| Together | 4.419 € | 4.502 € |
(Note: The example is based on the legal situation for the 2021 assessment period. The calculation of the solidarity surcharge and any applicable church tax is disregarded for reasons of simplification).
As the example shows, the couple with tax classes III and V would achieve a monthly net income that is around 83 euros higher than with tax classes IV/IV. This is because the higher-earning partner 1, for whom tax allowances have a greater effect in tax class III, pays 269 euros less income tax per month. On the other hand, partner 2 pays 186 euros more income tax per month than in tax class IV, and their individual income decreases accordingly. However, the tax class combination III/V in the example leads to an additional payment of €699 in the income tax assessment, while the tax class combination IV/IV leads to a refund of €299.
The example shows that there are sometimes conflicts of interest between partners when choosing tax classes. For example, many wage replacement benefits such as parental allowance depend on the net wage and are correspondingly lower in tax class V. This is where the factor method aims to offer an alternative.
The factor method is based on tax class IV and distributes the tax advantage of spousal splitting to both partners according to their respective shares of total income.
Continuation of the example from above:
| The annual income tax for | Tax classes IV/IV with factor |
|---|---|
| Partner 1 | 5.588 € |
| Partner 2 | 1.082 € |
| together | 6.670 € |
| Expected annual tax liability | 6.672 € |
| Expected additional payment | 2 € |
| Monthly net salary after tax | for tax classes IV/IV with factor |
|---|---|
| Partner 1 | 2.868 € |
| Partner 2 | 1.576 € |
| together | 4.444 € |
As you can see, partner 2 receives a monthly net income that is €190 higher than with the tax class combination III/V. The fact that there is only a small additional payment in the subsequent income tax assessment shows that the factor method takes the splitting advantage into account very precisely when deducting income tax.
Both spouses or partners can apply for the application of the factor method electronically on elster.de after a one-off free registration (under "All forms / Employee income tax / Application for tax class change"). Alternatively, you can also use the form "Antrag auf Steuerklassenwechsel bei Ehegatten/Lebenspartnern". You can obtain this from the BMF's form centre at formulare-bfinv.de or from your tax office
Further information on the factor method can also be found in the "Fact sheet on tax class selection" and in the "Small guide for income tax payers". You can also compare the tax effects of the factor method with other combinations of income tax classes at bmf-steuerrechner.de.
