Wage tax is deducted from your monthly salary – but how exactly does it work? What can you do to pay less wage tax? And what is the factor method?
In this article, you will learn:
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what your employer needs for the wage tax deduction
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how to apply for tax allowances
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when a change of tax class is sensible
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how the factor method works
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and why you should inform your Finanzamt about changes
What does your employer need for the wage tax deduction?
The basis is your electronic wage tax deduction features (ELStAM). Your employer retrieves these automatically from a central database using your tax identification number, your date of birth, and information on whether it is your primary or secondary employment.
How does the wage tax reduction procedure work?
If you want to pay less wage tax during the year – e.g. due to income-related expenses, children, donations, etc. – you can apply for a tax allowance (Freibetrag). To do this, use the official form "Antrag auf Lohnsteuer-Ermäßigung" (Application for Wage Tax Reduction).
The forms are available at the Finanzamt or at www.elster.de.
How & by when do I submit the application?
You can submit the application in paper form to the Finanzamt or directly online via ELSTER. The latest deadline for submission is 30 November of the current year.
How long is an allowance valid for?
By default, it is valid for one calendar year – upon request, you can also apply for it to last for two years. Flat-rate allowances for disabled persons or survivors may apply for longer.
Birth of a child – what to do?
Nothing. The registration authorities inform the tax administration automatically. The child allowance counter is recorded in the ELStAM system and made available to the employer – it reduces the solidarity surcharge and, if applicable, church tax (not the wage tax itself).
Child has finished vocational training – what now?
If the child allowance (Kinderfreibetrag) is no longer justified (e.g. after training ends), you must inform the Finanzamt informally so that the allowance can be adjusted.
When do you get Tax Class II?
If you are a single parent and a child for whom you receive child benefit (Kindergeld) or a child allowance lives in your household. This is applied for via the application for wage tax reduction with "Anlage Kind" (Annex Child).
What applies to additional children in Tax Class II?
Only the base relief amount for the first child is automatically taken into account. For the second and each subsequent child, you must apply for an increased amount as an allowance (Anlage Kind).
Tax class combination: Which is best?
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IV/IV: for roughly equal income – rather neutral
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III/V: one partner earns significantly more – can lead to tax back payments
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IV with Factor: more precise, more fairly distributed, but slightly more complex
Tip: You can check your optimal combination using the tax class calculator from the BMF.
Changing tax class – how does it work?
With the form "Antrag auf Lohnsteuer-Ermäßigung" and "Anlage Steuerklassenwechsel" (Annex Change of Tax Class) – by post or via ELSTER. The change takes effect from the following month.
Change within the year – allowed?
Yes, a change is possible several times a year, e.g. in the event of changed working hours or separation.
Permanent separation – what happens?
In the year of separation, the tax class remains unchanged. From the following year, Tax Class I applies. The separation must be reported to the Finanzamt (Anlage Steuerklassenwechsel).
Conversion of a civil partnership into a marriage?
No tax changes – the chosen tax class combination remains in place.
To whom does the factor method apply?
To spouses or life partners who are not permanently separated and are both subject to unlimited income tax liability. It takes the splitting method into account directly during the wage tax deduction.
Effect of the factor method?
It ensures a fairer distribution of wage tax and avoids back payments. The factor is calculated from the projected income tax and the wage tax according to Tax Class IV, thus reducing the monthly deduction.
How is the factor calculated?
Formula: Factor = Income tax (according to splitting table) / Total wage tax according to Tax Class IV
Example:
Income tax = €4,000
Wage tax (IV/IV) = €4,800
Factor = 0.833 → Reduces the wage tax of both partners
How do I apply for the factor method?
Also via the application for wage tax reduction including "Anlage Steuerklassenwechsel". For additional allowances: fill out further annexes.
What happens to existing allowances in the factor method?
They are automatically included in the factor calculation – separate consideration does not take place.
Changing the factor – is it possible?
Yes – changes during the current year (e.g. for income-related expenses) are possible. You can also re-apply for the procedure several times a year (deadline: 30 November).
Do I have to file a tax return when using the factor method?
Yes, in any case. The factor method is not final, but is reviewed as part of the income tax assessment.
Where can I find more information?
All forms, explanations and calculators can be found at www.elster.de or directly at your local Finanzamt.
Moving house – is registration with the residents' registration office enough?
No – you should also inform your Finanzamt. This is the only way to ensure your ELStAM allocation is correctly updated.
📌 Conclusion: If you want to optimise your wage tax, you must take action
Whether it is the choice of tax class, child allowance, or the factor method – those who know what is possible can reduce their monthly tax burden or avoid later back payments.
Do you need help with the application or want to know what makes sense in your case?
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**Note
**This article serves for general information purposes and was carefully prepared by the editorial team of Lexo.Tax. Personal tax advice can only be provided within the framework of a membership with Lexo.Tax – and exclusively to the legally permitted extent according to § 4 Nr. 11 StBerG (Tax Consultancy Act).