If you work in Germany and are married, you can choose how to file your taxes with the tax office. Married couples and registered partnerships can either submit a single joint tax return or two separate tax returns. What conditions must be met to benefit from joint tax filing? When is a separate tax return worthwhile? In which situations is it better to include the spouse in the tax return? In the following mini-guides, we answer the most important questions about joint and separate tax assessment in Germany.
Joint assessment or separate assessment – that is the legal status
Before we talk about how taxes in Germany are best settled – jointly or separately – let’s take a moment to talk about the legal aspects. Every married taxpayer should know that according to §26 of the Income Tax Act (EStG), it is possible to choose the type of settlement with the German tax office.
In such a case, the taxpayer can choose between a separate and a joint tax return for spouses. In reality, however, not everyone can take advantage of this option. A joint tax return is possible if the spouses meet the following conditions:
the marriage must be legally valid in the respective tax year, both spouses are subject to unlimited tax liability, the spouses do not live permanently apart (which of course does not mean that they must have the same residence).
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It’s important to know that even a short-term fulfillment of the requirements in a specific tax period allows for a joint tax return in Germany. Thus, the requirements for such a tax return are also fulfilled if the marriage was concluded on December 31 or lasted only one day.
Tax aspects of the wedding
The marriage not only brings tax advantages in assessment but also raises questions about the costs of the wedding. Many newlywed couples wonder, whether the expenses for the wedding celebration are tax-deductible. While the celebration itself is not directly deductible, there are ways to claim household-related services under certain conditions.
Joint tax return in Germany – not only for married couples
It’s important to know that joint tax assessment in Germany is legally possible not only for married couples. The above-mentioned conditions also apply to individuals living in a registered partnership. The legal basis for this is the Civil Partnership Act. The Federal Constitutional Court decided this in its ruling dated 07.05.2013. (Az. 2 BvR 909/06).
Joint tax or separate calculation of the tax return in Germany – What if the marriage fails?
In everyday life, we can be confronted with various situations, and it’s no different in private life. Sometimes a marriage doesn’t withstand the test of time and dissolves. How does this situation behave in tax matters?
If the spouses divorce in a given tax year and one of the partners remarries in the same year, joint assessment can only occur with the new spouse – provided they meet the aforementioned requirements. However, if the remarriage takes place in the following year, a joint tax return can still be filed with the former spouse for the year of the divorce, provided the conditions are met. Thus, the former marriage is indeed considered in the tax calculation for the year of separation.
In this case, a joint tax return can only be filed with the spouse with whom a legally valid marriage existed at the end of the tax year.
Joint tax return in Germany – It is often worthwhile
The joint tax return is an option that offers an overall advantage. The purpose of such a tax return is to treat the spouses as one person. What does this mean in practice? Only in the case of a single tax return is a single tax assessment notice issued.
How does the German tax office calculate the taxable income of spouses? Initially, the individual incomes of the partners are determined, which are then added together. Only after that is a single tax calculated and due. In this way, the spouses are treated as a single taxpayer. The appropriate German joint assessment rate is then applied to this calculated income.
Joint assessment and tax vs. separate assessment in Germany – When is it advisable?
In what situations is it advisable to settle accounts jointly with the authorities in Germany? This is particularly advantageous when there are significant income differences between the spouses. In a joint assessment, the two incomes are first added and then divided by two. The individual income tax rate is calculated for this determined average income. The resulting tax is then doubled – which results in an overall lower tax burden than with a separate assessment, especially due to the progressive tax system. The greater the income difference between the spouses, the greater, in general, the tax benefit of the joint assessment.
Conclusion: The greater the income differences between the spouses, the greater the financial benefits that the spouses can anticipate.
Separate assessment for spouses in Germany – When is it worthwhile?
It is important to know that separate assessment is generally more expensive than joint assessment. In separate assessment, spouses or registered life partners each file their own tax return and receive a separate tax assessment. The tax is calculated individually for each person according to the basic rate.
Note: Since October 1, 2017, new registered partnerships can no longer be established in Germany. Existing partnerships, however, remain and can be converted into a marriage if desired. The tax rules for separate or joint assessment apply to married couples and to registered partnerships entered into before this date.
A separate tax return, despite marriage in Germany, can be advantageous in certain cases. What situations are these?
Let’s assume that one partner works in Germany and the other earns an income in another country like Poland. If the joint income exceeds the joint tax-free allowance in Germany (24,192 €), joint accounting seems less profitable at first glance.
It should be noted: Even with joint assessment, the basic allowance is doubled – each person receives the full allowance. Nevertheless, separate assessment can be worthwhile, especially if foreign income or regulations such as the progression clause (§ 32b EStG) play a role.
Moreover, separate assessment for spouses and life partners can lead to a higher tax refund if the partner working in Germany has tax class I and the spouse working abroad is not liable to tax or does not submit German income tax. So you see, the topic of income tax return – joint assessment or separate assessment is extensive.
Are you receiving compensation payments in Germany such as unemployment benefit, sickness benefit, or parental allowance? If this is the case, separate assessment may be preferable to joint assessment. Although these payments are tax-free, they are added to your total income and therefore increase your personal tax rate. In practice, this means that both partners will generally have to pay higher taxes when submitting a joint tax return.
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Maciej Wawrzyniak
In his private life, Maciej enjoys sporting challenges, playing the guitar, and swimming in the lake. He is also the proud father of three sons.
