The Factor Method (IV/IV with Factor) Simply Explained
The factor method is perhaps the most underestimated option when choosing a tax class. It combines the fairness of IV/IV with part of the liquidity advantage of III/V — while avoiding the dreaded back payment. Yet only few couples use it, often simply out of ignorance. This article explains how it works and who it suits.
You can see how the factor method affects your salaries and roughly which factor to expect in the <a href="/steuerklassen-rechner">tax class calculator</a>, which shows an approximation of the factor alongside IV/IV and III/V.
The basic idea
With the factor method both partners stay in tax class IV. In addition, the tax office enters a so-called factor, a number below 1, for example 0.894. This factor is applied to the wage tax of both partners and lowers it to the point where the sum of the monthly deductions already roughly matches the expected joint annual tax.
How the factor is calculated
The factor results from a simple ratio: you divide the expected joint annual tax under the splitting procedure by the sum of the wage tax that both partners would pay in tax class IV. Because splitting is almost always more favourable for jointly assessed couples than separate taxation, this ratio is below 1. That is precisely why the factor is below 1 and reduces the monthly tax.
The big advantage: fair distribution
Unlike III/V, where one partner pays very little and the other a great deal of wage tax, the factor method distributes the burden fairly. Each partner bears exactly the share that matches their income. This is especially important when both partners want to keep an eye on their own net — for instance with separate accounts or when maintenance and other claims depend on individual income.
Usually no back payment
Because the monthly wage tax under the factor method is already close to the actual annual tax, the year-end settlement is usually mild. Large back payments as with III/V are the exception. Note, however, that the factor method also entails an obligation to file an income tax return.
Who the factor method suits
The procedure is suited above all to couples with differing incomes who want to use the liquidity advantage but avoid the back payment. It is equally sensible when both partners value a fair, income-based distribution of the tax burden. With almost equal incomes the factor is close to 1 — then the method brings hardly any difference from the normal IV/IV combination.
How to apply for it
You apply for the factor method at the tax office, usually together with the expected annual gross wages of both partners. The factor is valid for up to two calendar years and must then be applied for again if the incomes change. A switch is also possible during the year.
Conclusion
The factor method is a well-thought-out compromise: more monthly net than plain IV/IV, a fair split between the partners and usually no nasty surprise at year-end. Check with the <a href="/steuerklassen-rechner">tax class calculator</a> whether the method suits your situation, and have the exact factor calculated by your tax office.