German government approves draft income tax reform
The German federal government has approved a draft income tax reform that provides relief for households with low and middle incomes, as well as higher taxes for people with very high incomes. According to the government’s estimate, the total amount of tax relief from 2028 will be €10 billion, The Local Germany reports.
The bill still has to be considered by the Bundestag and Bundesrat. The government plans to introduce the reform on January 1, 2027, while some of the new rates are due to take effect at the beginning of 2028.
Tax-free allowance and rates
The tax-free income allowance is planned to increase from €12,348 to €12,564 in 2027 and to €12,900 in 2028. The income threshold at which the 42% rate begins to apply is set to rise from €69,879 to €70,600. According to the Finance Ministry, this should make the increase in the tax burden smoother for incomes ranging from €17,800 to €70,600.
At the same time, the current higher tax for wealthy taxpayers is planned to be split into two rates. The 45% rate will apply to taxable income above €250,000 instead of the current €277,826. A new 47% rate is proposed for incomes exceeding €280,000.
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Family payments and employee deductions
The standard tax deduction for employees’ work-related expenses, including transport or office supplies, is planned to increase from €1,230 to €1,430. The maximum base salary used to calculate tax-free supplements for work on Sundays and public holidays is to be raised from €50 to €75.
Monthly Kindergeld child benefit is proposed to increase from €259 to €267 per child in 2027 and to €272 in 2028. The child tax allowance is planned to rise from €9,756 to €10,056, and then to €10,236. At the same time, the ability to deduct spending on tradespeople’s services from taxes is to be slightly reduced.
The Finance Ministry provided calculation examples: a married couple with two children, with each parent earning €2,800 gross per month, could save €632 in 2028. For an engineer with a gross monthly salary of €5,000, the projected tax relief would be around €192. The German Trade Union Confederation, DGB, said the relief is unlikely to offset inflation and significantly strengthen workers’ purchasing power.
