Tax planning of spouses: a comparison of same-sex and different-sex couples

Abstract This article provides a comparative analysis of tax planning decisions made by same-sex and different-sex couples. It exploits a unique aspect of the German tax system, which allows couples to select between two different withholding tax schedules. In the default option, both spouses are treated equally for tax purposes, but household-level taxes are not minimized. Conversely, the tax-minimizing asymmetric treatment increases income inequality within the couple. The results indicate that tax minimization at the household level influences this decision for both same-sex and different-sex couples. The findings also suggest that taxpayers are less likely to choose the tax-minimizing schedule if it leads to a greater decrease in the second earner’s net income. However, the analysis also shows that same-sex couples are less likely to choose the tax-minimizing option, particularly compared to different-sex couples where the man is the first earner. Additional analysis suggests that household financial organization and gendered division of tasks may play a significant role in explaining these disparities.