Bundestag decides on tax relief and child benefit plus

The Bundestag has passed a law to compensate for the cold progression in income tax and to increase child benefit. In addition to the former traffic light partners SPD, Greens and FDP, the Union and the AfD also voted for the relief. In order for them to come into force, the Federal Council must give their approval on Friday.

“The agreement provides a significant benefit for families and the working middle class in Germany,” said the Green Party’s budget politician, Sven-Christian Kindler, in the debate in the Bundestag. Former Finance Minister Christian Lindner (FDP), who originally wrote the draft, said that the state should not be a winner from inflation – that will be ensured here.

However, the SPD and the Greens sharply criticized the FDP’s insistence on removing other projects from the draft law. There would now be no investment incentives and better depreciation options for the economy – even though they are similar in the election programs of the FDP and the Union. Lindner said the relief measures were too small. Union MP Fritz Güntzler emphasized that the law also contained a lot of “bureaucratic madness” that had been deleted.

The negative effect of inflation on income tax should be offset by January. The so-called cold progression would otherwise have resulted in a hidden tax increase because citizens would have had to pay more to the tax authorities due to the increasing tax rate, even if their salary increase only compensated for inflation.

To prevent this, several key parameters in the tax rate are being shifted. Among other things, the basic allowance will be increased by 312 euros to 12,096 euros, i.e. the part of the income that is not taxed. In 2026 it is expected to rise further to 12,348 euros. The basis is calculations on the effect of inflation and the subsistence level in Germany.

The other key parameters of the tax rate should also be shifted so that higher tax rates only take effect later. Only the limit for the rich tax, which is still above the top tax rate, should remain the same. The exemption limit for the solidarity surcharge will also be adjusted.

It is also planned that child benefit will increase by five euros to 255 euros from the beginning of the year. According to the Budget Committee, this means additional expenditure of around 4.2 million euros for the state.

The child allowance is to be increased by 60 euros to 6,672 euros. The immediate child allowance for families with low incomes is to increase by five euros to 25 euros per month.

According to the Greens’ calculations, a family with two children and an income of 60,000 euros will be relieved of 306 euros in the coming year. There will also be another adjustment for child benefit and child allowance in 2026.

In order for the law to come into force, the consent of the federal states is also necessary. It recently became apparent that this could be successful – even if the federal states forego annual revenue of an average of 5.4 billion euros.

According to calculations by the Ministry of Finance, the relief will cost the state around 7.2 billion euros in the coming year, and between 13.5 and 14.8 billion in the following years.

Even if the law is passed before the end of the year, citizens will probably not actually feel the tax relief in January. It takes a while until they are traced in the administration and then become visible on pay slips. The higher child benefit, on the other hand, should be paid out in January.