What is the factor method?
The factor method is an option for spouses or civil partners who wish to distribute their tax burden as fairly as possible during the year. It can be chosen instead of the tax class combination III/V or in addition to the tax class combination IV/IV.
How does the factor method work?
- Both spouses or civil partners remain in tax class IV.
- The tax office calculates a factor (less than 1) which is applied to each partner's wage tax.
- This factor ensures that the wage tax deductions during the year take into account the tax relief of the splitting procedure.
Advantage: Each partner already benefits from the basic allowance and a realistic tax distribution in the monthly wage tax deduction. This avoids additional payments at the end of the year.
How is the factor calculated?
The factor is derived from the ratio of the expected income tax in the splitting procedure to the sum of the wage tax under tax class IV/IV.
Example:
- Partner A: Salary 30,000 Euro (wage tax in class IV: 3,951 Euro).
- Partner B: Salary 12,000 Euro (wage tax in class IV: 77 Euro).
- Total wage tax (IV/IV): 4,028 Euro.
- Income tax (splitting procedure): 3,586 Euro.
- Factor: 3,586 Euro ÷ 4,028 Euro = 0.890.
The employers apply the factor to the respective wage tax:
- Partner A: 3,951 Euro × 0.890 = 3,516 Euro.
- Partner B: 77 Euro × 0.890 = 68 Euro.
Total wage tax after factor method: 3,584 Euro (corresponds to the income tax to be assessed).
Comparison: III/V and IV/IV with factor method
- Tax class combination III/V: The wage tax is initially calculated lower, but usually leads to an additional payment in the income tax assessment.
- IV/IV with factor method: The wage tax is distributed realistically, so that no additional payment is required (provided there are no other incomes).
Important notes on the factor method
- Obligation to submit a tax return: As with the combination III/V, an income tax return is also required for the factor method.
- Automatic classification in IV/IV: Since 1 January 2018, spouses and civil partners are automatically classified in tax class IV/IV when they marry.
Advantages of the factor method
- Fair distribution of the tax burden during the year.
- Avoidance of high additional payments in the income tax assessment.
- Flexibility through adjustment to the individual income situation.
Conclusion: The factor method is a sensible alternative for spouses and civil partners who wish to distribute their tax burden evenly and avoid additional payments. It combines the advantages of tax classes IV/IV with a realistic consideration of the splitting procedure.
