The federal government plans to offer significantly greater relief to employees through the incentive premium than initially anticipated. The black-red coalition intends to extend the 1,000 euro incentive premium, which was originally set to expire this year, until June 30, 2027. According to the “Handelsblatt” (Tuesday edition), citing insider information, Federal Finance Minister Lars Klingbeil (SPD) estimates this extension will result in a relief volume of 2.8 billion euros. This figure stems from a resolution motion submitted by the governing parliamentary factions, which is scheduled for a vote in the German Bundestag on Wednesday.
These projected costs are substantially higher than the original plan. This increase is attributed to the fact that the more time companies have to utilize the measure, the more likely it is that they will take advantage of it. Both the CDU/CSU and the SPD had agreed on the incentive premium during the coalition committee meeting on April 12. The aim was to allow employers to voluntarily pay their staff a tax- and contribution-free incentive premium of 1,000 euros in 2026, with the associated costs usable by the companies as business expenses for tax deduction. To counteract the anticipated revenue shortfall, the federal government plans to raise the tobacco tax starting in 2026, an adjustment that was originally meant for a later date.
Following the coalition committee’s agreement, there had been considerable resistance, including from employers who argued they would have to bear the costs, which many felt they could not afford due to the economic crisis. Furthermore, activists criticized the premium’s timeframe as being too short. In response, Chancellor Friedrich Merz (CDU) indicated last week that the premium was merely an offer, suggesting it could be paid out only partially or potentially even in 2027. The CDU and SPD have now reached a final agreement on these terms.
