The § 32a tariff: five zones, two tax rates and income splitting

Jana Köhler, single, a graphic designer, has taxable income of 60,000 € in 2026. Her assessment shows 14,233 € of tariff income tax, just under 24 percent. Her tax adviser, on the other hand, says every further euro costs her almost 39 cents. Both are right. And if she were married to her partner, who earns nothing, the tax would be 8,434 €.

The ladder up to taxable income

The tariff does not bite on the salary, the profit or the bank balance, but on a single figure at the end of a chain of calculations. § 2 EStG describes that chain paragraph by paragraph. Anyone who knows its steps understands why two self-employed people with the same turnover can be taxed very differently.

The chain starts with the seven types of income in paragraph 1, from agriculture and forestry to other income. For the three profit-based types, the income is the profit; for the others, it is the surplus of receipts over income-related expenses. Investment income taxed under the separate flat rate stays outside this calculation under paragraph 5b.

All income is added up into the total of income, positive and negative amounts alike. Deducting the old-age relief amount, the single-parent relief and the deduction under § 13(3) gives the total amount of income. This intermediate figure matters because the loss deduction of the second module applies exactly there.

Special expenses and extraordinary burdens are then deducted from the total amount; the result is called income. Reducing it by the child allowances, where they apply, and by other amounts deductible from income leaves taxable income. Only this figure is fed into the tariff of § 32a.

Two roundings follow the last step, and both are often overlooked. Taxable income is rounded down to whole euros before it goes into any formula. The resulting tax amount is also rounded down to the next whole euro. Cents therefore play no part anywhere in the tariff calculation.

Before any tariff calculation, it is therefore worth asking which step a figure comes from. Someone who puts their profit straight into the formula forgets pension contributions and other special expenses and overstates the tax. Someone who confuses income with the total amount of income applies the loss deduction in the wrong place.

The order of the steps has an effect of its own. Whatever is deducted at an early step reduces every later figure that other provisions refer to. A loss that already lowers the total of income therefore works differently from a special expense, which only reduces income and may have been used up before it counts.

Five zones, five formulas

From the 2026 assessment period, § 32a(1) divides taxable income into five zones and gives a separate formula in euros for each. The limits are fixed amounts that the legislature raises at short intervals. The values given here apply to 2026; earlier years have different ones.

The first zone runs up to 12,348 euros and is named basic allowance in the Act itself: the tax there is zero. The course on children and family uses the same amount as the ceiling for maintenance payments. Here it matters as the start of the tariff, the point at which taxation begins at all.

The second zone runs from 12,349 to 17,799 euros. It works with an auxiliary variable y: one ten-thousandth of the amount by which rounded taxable income exceeds the basic allowance. The formula is 914.51 times y plus 1,400, and that intermediate result is multiplied by y once more.

The third zone runs from 17,800 to 69,878 euros and uses a second auxiliary variable z, one ten-thousandth of the part above 17,799 euros. The expression is again quadratic: 173.10 times z plus 2,397, times z. A fixed amount of 1,034.87 euros is added, which joins this zone seamlessly to the second one.

From 69,879 euros the tariff becomes linear. In the fourth zone, up to 277,825 euros, the tax is 42 percent of income x minus 11,135.63 euros. From 277,826 euros the fifth zone applies, with 45 percent minus 19,470.38 euros. The subtracted amounts prevent the tax from jumping at a zone boundary.

Why quadratic expressions? Because they produce a tax rate that rises evenly within the zone. The slope of a quadratic function is a straight line. In the second and third zones, each additional euro is taxed slightly more heavily than the one before, without steps and without jumps. This is why the tariff is described as linear-progressive.

The auxiliary variables y and z have a practical purpose. They measure how far income reaches into the zone concerned, in units of 10,000 euros. This keeps the coefficients of the formulas manageable, and anyone can recompute the tax with a pocket calculator, without tables or software.

Marginal tax rate and average tax rate

The average tax rate is simply the tax divided by taxable income. For Jana Köhler that is 14,233 divided by 60,000, about 23.7 percent. This figure describes the overall burden and is useful for budgeting and reserves, but not for deciding whether to take on the next assignment.

The marginal rate can be read off the formulas. At the start of the second zone, y is almost zero and the slope is 1,400 divided by 10,000, or 14 percent: the entry rate. At the end of the second zone it is just under 24 percent, exactly where the third zone begins.

In the third zone the marginal rate keeps rising and reaches almost exactly 42 percent at its upper end. The linear fourth zone therefore follows without a kink. At 60,000 euros, Jana sits in the middle of the third zone; her marginal rate there is just under 39 percent, although her average does not reach 24 percent.

In the fourth and fifth zones the marginal rate is constant, 42 or 45 percent. The average rate only approaches these values and never reaches them, because the basic allowance and the lower-taxed zones are always included. At 69,878 euros the average is still only a little over 26 percent.

For decisions, the marginal rate almost always counts. An additional business expense of 1,000 euros saves Jana nearly 390 euros of income tax, not 237. An extra assignment bringing 5,000 euros of profit costs her correspondingly more than her average suggests. The one-fifth rule of the third module also works purely through the marginal rate.

A common worry is that a pay rise could leave you worse off because you slip into a higher bracket. Under the § 32a tariff that cannot happen. The higher rate applies only to the additional euros, never retroactively to all income. More income always leads to more income after tax.

Income splitting for jointly assessed spouses

§ 32a(5) governs how tax is computed for spouses assessed jointly under §§ 26 and 26b. Their joint taxable income is halved, the normal tariff is applied to one half, and the resulting amount is doubled. Under § 2(8), the same applies to registered civil partners.

Under § 26(1), joint assessment requires both spouses to be subject to unlimited tax liability and not to be permanently separated. These conditions must have existed at the start of the year or arisen during it. A wedding in December is therefore enough for the whole year.

The choice is made in the return, by both spouses. If only one of them chooses separate assessment, both are assessed separately. Once the assessment is final, the choice can only be changed under the narrow conditions of § 26(2) sentence 4, for instance when an assessment is being amended anyway.

The advantage comes from progression alone. If both spouses earn the same, halving changes nothing and splitting brings not a single euro. If one earns everything, that income is treated as if it were spread over two people, and both halves use the basic allowance and the lower zones.

For Jana this would mean twice the tax on 30,000 euros, twice 4,217 euros or 8,434 euros, instead of 14,233 euros as a single person. The difference of 5,799 euros is the splitting advantage. It has a ceiling: once half the income already lies in the fourth zone, it grows no further until the whole reaches the fifth.

Paragraph 6 names two special cases. A widowed taxpayer keeps splitting for the year after the spouse's death, provided both met the conditions at the time of death. And someone who remarries in the year of a divorce can, under certain conditions, split once more for the dissolved marriage.

For advice this leads to a simple rule. The advantage cannot be guessed, it has to be computed: once as the two individual taxes and once as the splitting tax. The more unequal the incomes are, and the closer they lie to the curved zones, the larger it turns out.

What the tariff tax is not yet

The tariff applies only subject to a set of provisions that § 32a itself lists: §§ 32b, 32d, 34, 34a, 34b and 34c. Behind them lie the progression proviso, the separate rate for investment income, extraordinary income, the relief for retained profits and special rules for forestry and foreign income.

The progression proviso is the most frequent example. Tax-free wage replacement benefits do not increase the tax base, but they do increase the rate applied to the rest of the income. The tariff is then used twice: once to find a special rate, and once to apply that rate to taxable income.

Nor is the tax actually assessed the same as the tariff tax. Under § 2(6), tariff income tax is reduced by tax reductions and creditable foreign taxes and increased by certain amounts, for example by child benefit where child allowances were deducted. The solidarity surcharge and church tax come on top as separate levies.

In practice, anyone comparing a figure in an assessment with the tariff has to look for the line showing tariff income tax. The prepayment or the refund at the end already includes reductions, credits and the wage tax withheld, and says little about the tariff itself.