If you get married, you can save a lot of taxes with spousal splitting. Unmarried families find this unfair, as do single parents. There is bitter debate about reform. Does the model still fit our times?
In the beginning it was a relationship of equals: Darja B. earned more as a pharmacist than her partner. Then came the first son, the wedding, and three and a half years later the second son.
Like so many women, she takes parental leave and then works part-time. After the wedding, she and her husband will be assessed jointly for tax purposes, splitting between spouses – like the majority of all married couples. “To be honest, we didn’t think about it,” says Darja B. “We did it that way because everyone did it that way.”
The basic idea is simple: the tax office lumps both earnings together. Then it is halved. And everyone pays taxes for exactly half. It doesn’t matter whether the couple has children or not. The highlight: If one earns much more than the other, the couple can save a lot of taxes.
A calculation example
One partner has 60,000 euros of taxable income per year, the other only 5,000. For example, that means 15,200 euros in taxes for the higher earner and none for the other person. So a total of 15,200 euros in taxes.
Now the splitting calculation: The couple has a combined taxable income of 65,000 euros, i.e. 32,500 each. This means taxes of 5,450 euros per person, so a total of only 10,900 euros. By splitting, the couple saves 4,300 euros per year.
The advantage: All married couples pay the same taxes with the same joint income – regardless of how the income is divided between the couples. The disadvantage: The greatest savings effect is for couples where one earns a lot and the other earns very little or nothing. And significantly more mothers still work part-time than fathers.
According to critics, splitting between spouses plays into the hands of this model. Spousal splitting costs the state 20 billion euros. All family constellations without a marriage certificate are excluded from spousal splitting.
Fair and cheap or antiquated?
And that’s exactly where the criticism of splitting comes in: What does the state actually want to promote with spousal splitting? The parties are completely at odds on this point.
“When you get married, you assume responsibility for each other, including maintenance claims. And that’s why it’s only right and fair for the state to tax an economic community like marriage together,” says Finance Minister Christian Lindner, FDP.
SPD chairman Lars Klingbeil calls splitting an “antiquated tax model” that needs to be changed. “It means that especially where one of the two partners earns a lot of money, and that is usually the man, it is attractive for the second partner to stay at home.”
That’s how it was with Darja B. After her parental leave, she stayed at twelve hours part-time per week. She quickly realized: This isn’t for her. She would rather work more again. “And that’s when the discussions with my husband began,” she remembers.
Housewife marriage model
When spousal splitting was introduced in the 1950s, the housewife marriage was the usual model of life. Today things look completely different: a third of all families with children are single parents or couples without a marriage license – and do not benefit from spousal splitting.
Conversely, more than half of all married couples have no children at all and still enjoy the tax advantage. So is spousal splitting still relevant? No, according to many experts.
EU Commission complains Spousal splitting
Germany has also been criticized several times by the OECD and the EU Commission for spousal splitting, as it has undesirable side effects and keeps women out of the labor market in particular – especially in the variant with tax classes III and V. Spousal splitting can be operated in different variants .
The bottom line is that at the end of the year the couple will have the same result regardless of the options – but depending on which tax bracket the couple chooses, it makes a huge difference for the individual partner.
Darja B. and her husband at the time used spousal splitting in tax classes III and V, like most married couples.
Tax classes III and V
It works like this: The higher earner takes tax class III, the lower earner takes tax class V. The lower earner then leaves the basic tax allowance and, if there are children, the child tax allowance to the better earner. The person who earns less has an excessive amount of taxes deducted every month, while the person who earns more has even less. For lower earners, the work seems even less worthwhile.
Darja B. noticed that the marriage was in trouble on different levels. “Suddenly things came up that he asked: Why did you buy that without asking? I then thought: Wait a minute, I also earn money and I just want to be able to buy something like that. I’m somehow into something and became smaller than I actually am.”
“It’s not worth it if you work more”
Helma Sick knows such cases. She runs a financial consultancy for women in Munich. “Women often hear the argument from men: Look, darling, it’s not worth it if you work more. Then I’ll lose my big tax savings.” Women are often not even aware of how great the tax advantage is for men and their own financial disadvantage.
Sick draws attention to another disadvantage: those in tax class V also receive less sick pay, unemployment benefit I or parental benefit because of their lower net income.
At some point, Darja B. drew the line and got a divorce. She is therefore entitled to half of her ex-husband’s pension entitlements for the years of marriage together. Sick emphasizes that it only applies to the part of the salary that does not exceed the assessment limit – and only for the duration of the marriage. “The women are often surprised at how little it actually is.”
Helma Sick advises women on financial issues.
Loss of opportunities
“What also cannot be quantified is the loss of professional opportunities. Opportunities for advancement, money that she would have earned in a different position,” says Sick. “Many women therefore end up in poverty in old age.”
Darja B. is working significantly more hours again today. She never wants to be financially dependent on a man again.
There is more on this topic in the WDR story “Tax haven marriage: Is splitting between spouses still fair?” in the ARD media library.