Talks within the federal government regarding reforms to the spousal tax split and the discontinuation of free supplemental insurance coverage are expected to significantly burden single-earner marriages. According to the “Welt am Sonntag” citing calculations from the Institute of the German Economy (IW), a household with a taxable income of €35,000 would have €2,198 less disposable income by the end of the year compared to the current system. For a household earning €50,000, the additional deductions would be €2,438, and for one earning €100,000, the reduction would amount to €5,760.
The institute believes these changes will have a positive impact on the labor market. Tobias Hentze, head of the State, Taxes, and Social Security department at the IW, stated that this reform package would incentivize the non-working spouse to enter employment. This incentive operates on two fronts: first, to offset the lower net income, and second, because a larger proportion of the net earnings would remain after employment. For low- and average-income earners, this motivation stems mainly from the end of free supplementary insurance. For higher earners, the incentive relates to the removal of a tax advantage.
In their calculations for a spouse without earned income, the IW assumed a minimum monthly mandatory health insurance contribution of €225. These mandatory payments were also factored in as they reduce the overall income tax burden because they are tax-deductible. The financial consequences of the proposed real splitting were calculated based on a transferable amount for the spouse of €13,805.
Federal Finance Minister Lars Klingbeil (SPD) announced in a speech at the end of March his intention to eliminate the current “spousal tax split” for future marriages, replacing it with a concept known as a “fictitious real splitting”. Under this system, partners would be able to divide a specific tax-free allowance among themselves in a way that optimally impacts their tax liability. The key figure cited here is the maximum amount, €13,805, that divorced or separated spouses can tax-deduct as alimony payments.
Furthermore, the Finance Commission on Health, established by the federal government, proposed eliminating the free supplementary insurance coverage for spouses, with only a few exceptions, at the end of March.
