Reform already this year - Contributions, child benefits and so on: This changes with the new tax classes
## Contents
- Tax Deductions
- Child Benefit
- Inflation Adjustment in Tax Rates
- Tax Classes for Couples
- Will anything change in spousal splitting?
Taxpayers will benefit from higher tax deductions this year. In addition, new tax classes for married couples and civil partners will be introduced starting in 2030. The German government announced these reforms in Berlin and they will be discussed in the Bundestag and Bundesrat next.
These measures are expected to relieve taxpayers, especially families, by an average of 14 billion Euros per year until 2028. Here's what the tax laws will change for taxpayers:
Tax Deductions
According to the Federal Constitutional Court, the minimum existence cannot be taxed. Therefore, tax deductions in income tax must be regularly adjusted. They will no longer only apply to future years but also retroactively for the current year 2024.
Specifically, the basic deduction, up to which no income tax is due, will increase by 180 Euros to 11,784 Euros this year. It will be raised by an additional 300 Euros to 12,084 Euros in the next year, and by another 252 Euros to 12,336 Euros in 2026.
The tax-exempt child deduction will increase by 228 Euros to 6,612 Euros this year. It will be raised by an additional 60 Euros to 6,672 Euros in 2025, and by another 156 Euros to 6,828 Euros in 2026. The numbers are still preliminary and may be adjusted in the fall if new figures for the minimum existence become available.
Child Benefit
Starting in January, families will receive five Euros more per month and child – so 255 Euros instead of the previous 250 Euros monthly. In 2026, another adjustment is planned: Then, there will be an additional four Euros, resulting in 259 Euros per month per child.
The child supplement, which supports families with low incomes, will also increase by five Euros per child starting in January. This amounts to 25 Euros per month per child. These reliefs for families were part of the difficult compromise of the traffic light coalition for the 2025 budget.
Inflation Adjustment in Tax Rates
Lindner managed to pass through the budget negotiations that the tax brackets be adjusted again to inflation. The income thresholds, above which the next higher tax rate applies, will be raised – with the exception of the top tax rate. This tax rate, which is still above the top tax rate at 45%, will continue to apply to taxable annual income above 227,826 Euros. The thresholds for the solidarity surcharge, however, will also be raised.
The German government is thus eliminating the so-called cold progression. Without this adjustment, a wage increase in line with inflation would lead to higher taxes – even though the affected person would not actually have any higher purchasing power.
Tax Classes for Couples
The tax classes do not affect the final amount of taxes payable. However, they allow couples to have more money at their disposal until the final tax declaration, effectively acting as an interest-free loan from the tax office. Couples with different incomes have been using the combination of tax classes 3 and 5 for this purpose so far. The higher earner benefits from higher deductions in tax class 3, while the partner with the lower income has significantly higher deductions in tax class 5.
Both of them together have the best possible net income available monthly – but they have to keep in mind that they will have to pay taxes at the end of the year. In addition, the impression may quickly arise for low-income earners that their work is not worth it.
The German government now wants to abolish the two tax classes. Instead, partners will automatically fall into tax class 4 with the so-called factor method from 2030. The tax office then calculates concretely how much net contributes to the income and taxes accordingly. The tax burden is supposed to be distributed more fairly between both spouses or partners. Under the hood, the tax burden for couples does not change, but tax payments will be less frequent.
Does something change about spouse splitting?
No. The splitting is also applied in tax class four with the factor method. Partners can then submit a joint tax declaration. Both incomes are then combined, and in the calculation of the tax burden, the tax office assumes that both contribute equally to the family income. This brings advantages if the partners earn different amounts – because the smaller income dampens 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: The splitting rewards income differences and gives incentives for women to work part-time. This ultimately leads to lower pension claims and more poverty in old age for women. The FDP rules out a repeal because it would lead to a significant tax increase.
The Federal Council and the Federal Parliament will discuss the tax reforms announced by the Federal government, which include higher tax deductions and new tax classes for married couples and civil partners from 2030. This is expected to provide relief to taxpayers, especially families, by an average of 14 billion Euros per year until 2028.
The child benefit is set to increase by 5 Euros per month per child starting in January 2023, and an additional 4 Euros per month per child in 2026. This adjustment is part of the 2025 budget compromise, aimed at supporting families with low incomes.
Some taxpayers may be categorized under a different tax class due to the government's plan to abolish the two existing tax classes for couples from 2030. Instead, partners will automatically fall into tax class 4 with the factor method, which is expected to distribute the tax burden more fairly between both spouses or partners.
