The federal government has launched a far-reaching tax reform. The new tax brackets are intended to provide relief for families and couples in particular in the coming years.
Taxpayers will benefit from higher tax allowances on their income tax this year. In addition, married couples and life partners will be subject to new tax brackets from 2030. The federal government in Berlin has initiated corresponding reforms. They will next be discussed in the Bundestag and then in the Bundesrat.
The measures are intended to relieve taxpayers – especially families – by an average of 14 billion euros per year by 2028. What the tax laws will change specifically for citizens:
Tax allowances
According to the Federal Constitutional Court, the subsistence level may not be taxed. Therefore, income tax allowances must be adjusted regularly. They are now to change not only for future years, but also retroactively for the current year 2024.
Specifically, the basic allowance, up to which no income tax is payable, is to rise by 180 euros to 11,784 euros this year. Next year it is to be increased by a further 300 euros to 12,084 euros, and in 2026 by a further 252 euros to 12,336 euros.
The tax allowance for children is to be increased by 228 euros to 6,612 euros this year. In 2025 it is to be increased by a further 60 euros to 6,672 euros, and in 2026 by another 156 euros to 6,828 euros. However, the figures are still provisional and can be adjusted in the autumn when new figures on the subsistence level are available.
Child benefit
From January, families will receive five euros more child benefit per month per child – i.e. 255 euros per month instead of the previous 250 euros. A further adjustment is planned for 2026: Then there will be another four euros more, i.e. 259 euros per month per child.
The child benefit supplement, which supports families with low incomes, is also set to increase by five euros from January. Each child will then receive 25 euros per month. The relief for families was part of the traffic light coalition’s difficult agreement on the 2025 budget.
Inflation adjustment in the tax rate
In the budget negotiations, Lindner has pushed through the adjustment of the key figures in income tax to inflation. The income limits at which the next higher tax rate is due will be raised – with the exception of the tax on the rich. This tax rate, which at 45 percent is still above the top tax rate, will continue to apply to taxable annual income of 227,826 euros or more. The exemption limits for the solidarity surcharge, on the other hand, will also be raised.
In this way, the federal government is compensating for what is known as bracket creep. Without this adjustment, a salary increase equal to inflation would lead to higher taxes – even though the person affected ultimately has no greater purchasing power at all.
Tax brackets for couples
The tax brackets do not affect the final amount of taxes to be paid. But they do allow couples to have more money available until the final tax return, almost like an interest-free loan from the tax office. Up to now, couples with different incomes have used the combination of tax brackets 3 and 5 for this purpose. The high earner benefits from higher allowances in tax bracket 3, while the partner with the lower salary has considerably higher deductions in tax bracket 5.
This means that both of them have the best possible net income each month – but they must expect to pay additional taxes at the end of the year. In addition, low earners can quickly get the impression that their work is not worth it.
The federal government now wants to abolish the two tax brackets. Instead, from 2030, partners will automatically fall into tax bracket 4 using the so-called factor method. The tax office will then calculate exactly who contributes how much net income and tax accordingly. The wage tax burden will thus be distributed more fairly between both spouses or life partners. The bottom line is that the tax burden for couples will not change, but back payments will become less frequent.
Will there be any changes to the splitting of income between spouses?
No. The factor method for tax class four also applies to the spousal splitting. This allows partners to submit a joint tax return. Both incomes are then added together, and when calculating the tax burden, the tax office assumes that both contribute the same amount to the family income. This has advantages if the partners earn different amounts – because the smaller income reduces the tax burden of the larger one.
The future of splitting is controversial in the traffic light coalition: Family Minister Lisa Paus (Greens) would like to abolish it. She argues that splitting rewards income differences and thus provides an incentive for women to only work part-time. This ultimately leads to lower pension entitlements and more poverty in old age among women. The FDP, on the other hand, rules out abolishing it because it would be tantamount to a significant tax increase.
Source: Stern
