Tax return in Germany – joint or separate?

When working in Germany and being married at the same time, there is an option to choose the method of submitting the tax return to the tax office. Married couples and registered civil partnerships may either file a joint tax return or two separate tax returns. What requirements must be met in order to use the joint tax return? When is it advisable to submit separate tax returns? In which cases is it practical to include the spouse in the tax return? The following brief guides answer the most important questions regarding joint and individual tax assessment in Germany.

Joint or Separate Assessment – Legal Situation in Germany

Before discussing the optimal method of tax payment in Germany – jointly or separately – legal aspects must be taken into account. Every taxpayer in a marriage should be aware that, according to Section 26 of the Income Tax Act (EStG), the choice of assessment method can be made with the German tax office.

In this context, the taxpayer may choose between separate and joint tax returns for spouses (joint assessment). In fact, this option is not open to everyone. The joint tax return is only possible if the spouses meet the following requirements:

• The marriage must be legally valid during the respective tax year.
• Both spouses are subject to unlimited tax liability.
• The spouses do not live permanently separated (which does not necessarily require the same residence).

It is important to note that even a short-term fulfillment of the requirements within the relevant tax year allows the submission of a joint tax return in Germany. The requirements for such a tax return therefore also apply if the marriage was entered into on December 31 or existed for only one day.

Tax Aspects of Marriage

Marriage influences the tax situation in various ways – in particular, it opens the option of joint assessment. It should be noted that the direct costs of the wedding are generally not tax-deductible. 

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Within the framework of tax assessment in Germany, it is not advisable to decide on joint or separate submission without thorough examination. The joint return often offers advantages in the case of significant income differences, while in other cases, separate assessment may be more appropriate – for example, in the case of foreign income, wage replacement benefits, or special circumstances for one spouse. A prior comparison of both options before submitting the tax return is recommended.

Joint Tax Return in Germany – Not Only for Married Couples!

According to the legal situation, joint assessment is not reserved exclusively for married couples. The above-mentioned conditions also apply to registered civil partnerships. The legal basis is the Civil Partnership Act. This legal opinion was confirmed by the decision of the Federal Constitutional Court of 07.05.2013 (Case No. 2 BvR 909/06).

Joint or Separate Tax Assessment in Germany – Provisions in Case of Separation or Divorce

If a marriage is dissolved in the course of the tax year, the question arises as to how this affects the possibility of joint assessment.

If the spouses are divorced in the relevant tax year and one of the spouses remarries in the same year, joint assessment is only possible with the new spouse, provided the aforementioned conditions are met. However, if the remarriage occurs only in the following year, the joint tax return for the year of divorce may be filed with the former partner, provided the conditions are also met in this case. This means that the former spouse will still be taken into account when calculating taxes for the year of divorce. In this case the joint tax return can only be filed with the person to whom a legally valid marriage existed at the end of the relevant tax year. 

It should be noted that joint assessment in Germany (joint taxation) is frequently combined with the selection of appropriate tax classes (tax categories), which affects monthly wage tax withholdings. Among other options, spouses may select IV/IV (for similar incomes), III/V (when one partner earns significantly more) or IV/IV with factor, which depicts the actual tax burden more accurately. While the tax class does not influence the final annual tax, it is relevant for liquidity – for instance, the III/V combination leads to lower withholdings for one partner, but this often results in a payment due after the tax calculation. Optimal adjustment of both the method of assessment and tax classes to the income structure is recommended; in this context the greatest advantages usually arise when there are significant income differences and the combination of joint assessment with tax class III/V.

Joint Tax Return in Germany – Numerous Advantages

In most cases, the joint tax return is financially advantageous. The aim of this procedure is the fiscal equalization of the spouses as one person. What does this mean in concrete terms? Only when a joint tax return is filed is a joint tax assessment notice issued.

How does the German tax office calculate the taxable income of the spouses? Initially, the individual incomes of the partners are determined and subsequently added together. Only then does the joint taxation take place. As a result, both spouses are treated as a single taxpayer. The applicable German tax rate is then applied to the income thus determined.

Joint vs. Separate Tax Assessment in Germany – When is Which Option Advantageous?

In which situations is joint assessment at the German tax office especially advantageous? This is particularly the case when there are significant income differences between the spouses. In joint assessment, both incomes are initially added together and then divided by two. The individual tax rate is calculated for this average income. The resulting tax is doubled –  this generally leads to a lower tax burden than in the case of separate assessment, because the German tax system is progressive. The greater the income differences, the more significant the tax advantage of joint assessment.

The greater the income disparity between the spouses, the greater the financial benefit that can be achieved.

Individual Assessment for Spouses in Germany – When Is It Worthwhile?

It should be noted that individual assessment is generally less favorable from a tax perspective than joint assessment. In individual assessment, spouses or registered civil partners submit separate tax returns and receive individual tax assessment notices. Tax is calculated for each person individually according to the basic tax rate.

Note: Since 1 October 2017, new registered civil partnerships can no longer be established in Germany – since then, same-sex couples may enter into marriage. The tax regulations regarding individual or joint assessment continue to apply to marriages and civil partnerships established before this date.

When Is Individual Assessment Advantageous Despite Joint Living Arrangements?

Even in the presence of a marriage, individual assessment may be advantageous in certain cases. Which situations are covered? For example, one partner works in Germany, the other derives income abroad, for instance in Poland. Jdepending on whether the joint German income threshold (EUR 24,696) is exceeded, joint assessment may appear less attractive at first glance.

Even with joint assessment, each spouse is entitled to an individual tax-free allowance – this is therefore doubled. Nevertheless, individual assessment can be advantageous, especially if foreign income or rules such as the so-called progression clause (§ 32b EStG) are relevant. In addition, individual assessment for spouses and civil partners may result in higher tax refunds if the partner working in Germany is in tax class I and the (foreign working) spouse is not subject to German tax liability or does not pay German income tax. This highlights the complexity of the issue of tax returns – joint or separate assessment.

For recipients of wage replacement benefits in Germany, such as unemployment benefits, sickness benefits, or parental benefits, individual assessment may be more advantageous than joint assessment. Although these benefits are tax-free, they increase total taxable income and thereby the personal tax rate. In practice, this means that joint tax return submission usually leads to a higher tax burden for both partners.

Is an income tax return required? Or is there interest in consultation by a professional tax advisor in Germany, for example regarding spouse splitting or the option of submitting a separate income tax return also within marriage? In such cases, the online tax return for Germany in the Taxando application, an innovative solution for the German tax return, is recommended. With this application, the tax return can be completed and submitted to the relevant tax office in less than 15 minutes. When selecting the PREMIUM package, no personal contact with the authorities is required – an experienced tax advisor handles this. Test the service now and ensure a stress-free annual tax return procedure with the tax office!