Germany plans to scrap tax classes III and V: What it means for you

German Finance Minister Lars Klingbeil (SPD) plans to shake up the German tax system by scrapping classes III and V. Here’s what the change would mean for you:

Klingbeil plans tax class reform

According to an internal government document seen by Handelsblatt, Klingbeil will scrap tax classes III and V by the end of 2026. The two tax classes are popular among married couples.

Tax class III can be used by people who are married or in a civil partnership and whose partners earn significantly less than they do, while tax class V can be used by the lower-earning partner. Tax deductions in class III are lower than in class V. Each partner can use the relevant class so the couple can save money on their joint tax bill.

According to a 2024 report, 90 percent of the people using tax class V are women. This is likely because women are still paid an average of 16 percent less per hour than men, and more likely to balance part-time work and domestic labour.

If the plan goes ahead, the amount of tax a couple owes would instead be based on their respective incomes. This option already exists as tax class IV with the “factor method”, but would become the default for couples. Klingbeil believes scrapping tax classes III and V would render the system more “fair”, since women in part-time work would see smaller tax deductions. 

Support comes from SPD, criticism from CDU

Klingbeil’s reform plans have been met with praise and criticism. Speaking to SPIEGEL, deputy chair of the SPD parliamentary group Sonja Eichwede said the factor method ensures that work pays off more. 

“Those who work more also accrue higher pension entitlements and are better protected against poverty in old age. At the same time, this makes tax law simpler and more transparent,” Eichwede continued. 

Speaking to Handelsblatt, Bavarian Finance Minister Albert Füracker (CSU) called the reform plan “paternalistic” and “ideologically driven”. CDU/CSU parliamentary group spokesperson Fritz Güntzler said the factor method can be a sensible option, but there was no reason to scrap classes III and V.

The discussion about scrapping classes III and V is not new and was included in the previous SPD-FDP-Greens government coalition agreement, but the CDU/CSU opposed it.