Federal Finance Minister Lars Klingbeil (SPD) plans to significantly ease the tax burden for German taxpayers through a two-stage tax reform, which is set to take effect starting in 2028. According to a draft of the Income Tax Law 2027, which was cited by the “Rheinische Post”, this reform is expected to provide roughly €10 billion in total relief compared to the 2026 levels. The proposed draft is slated for approval by the federal cabinet this Wednesday.
The financial impact of the reform is projected to result in initial reduced state revenues of approximately €1.5 billion, rising to €5.6 billion by 2028.
The changes detailed in the draft include several measures designed to directly benefit ordinary taxpayers. The basic tax allowance (basic allowance) is scheduled to be raised to €12,564 in 2027, increasing further to €12,900 in 2028. Additionally, the second progressive stage of the income tax scale will be flattened up to an annual taxable income of €70,600.
Family benefits will also receive an increase: child benefits are slated to rise from the current €259 to €267 in 2027, and to €272 per child per month in 2028. The allowances for children will also be raised.
Regarding employment, the employee flat rate is increasing, rising from €1,230 to €1,430 in 2027. Furthermore, the maximum hourly wage for unpaid Sunday and holiday surcharges will be raised from €50 to €75. This increased threshold will allow a greater number of employees working on weekends and holidays to receive surcharges that are contribution-free. For mini-jobbers, employers will be required to pay a flat tax rate of five percent, up from the current two percent.
To offset these reductions for small and middle-income brackets, the government is introducing measures targeting higher earners. The “wealth tax” will begin at a 45 percent rate on annual taxable incomes of €250,000 for single individuals. Moreover, a new “super-rich tax” will be introduced, applying a 47 percent rate to incomes exceeding €280,000. The Ministry of Finance stated that the legal draft aligns with the coalition compromise agreed upon on July 2nd.
