Overview
- An internal Bundesfinanzministerium paper proposes abolishing tax classes III and V and automatically moving married couples into the existing IV-with-factor withholding method to align monthly tax deductions with each partner’s income share.
- The ministry argues the change would simplify the wage tax system and reduce the number of mandatory annual returns by calculating withholding more accurately at source.
- In practice the reform would not automatically change a couple’s annual joint income tax, but many households could see lower monthly net pay for the higher earner and higher monthly net for the lower earner, which can affect benefits tied to monthly income such as parental leave pay.
- The plan is politically contested: the paper is being negotiated between the federal government and the Länder for inclusion in a planned tax-simplification package, and Union politicians and some states, notably Bavaria, have publicly opposed the move, making approval and timing uncertain.
- The proposal recalls a failed 2024 attempt, could generate a one-off revenue effect in the first year that analysts put in the mid single-digit billions, and ministers and experts are calling for legal safeguards and detailed impact analysis before any final design is adopted.