Germany Approves Major Income Tax Reform to Relieve Low and Middle Incomes
On September 2, 2026, the German federal cabinet in Berlin approved a income tax reform proposal designed to deliver roughly ten billion euros in annual relief, targeting lower and middle-income households as well as families with children. The legislative package rolls out in two stages through 2028, balancing relief with higher levies on very high earners.
Legislative Mechanics and the Path to the Cabinet Approval
The federal cabinet advanced the income tax reform draft proposed by Finance Minister Lars Klingbeil, according to reporting by Deutschlandfunk. Notably, Minister Klingbeil missed the physical session due to an aircraft breakdown in the United States, yet the measure cleared the executive hurdle following extended political wrangling between the governing parties of the black-red coalition.
Tax liabilities in Germany do not derive directly from gross wages. Instead, calculations apply to the taxable income remaining after standard allowances and deductible expenses. The coalition structured this reform to ease the financial pressure on average wage earners while shifting a larger burden toward the upper echelon of earners, aiming to disburse the full ten-billion-euro relief volume fully by 2028.
Core Structural Adjustments in the Tax Tables
The reform introduces concrete modifications across several tiers of the German tax code:
- Basic Tax-Free Allowance (Grundfreibetrag): The portion of income exempt from taxation to secure the subsistence minimum rises incrementally from 12,348 euros in this year to 12,564 euros next year, reaching 12,900 euros by 2028.
- Top Tax Rate (Spitzensteuersatz): The 42 percent tax rate will take effect at a higher threshold, kicking in at 70,600 euros instead of the previous 69,879 euros. This flattens the tariff curve for incomes falling between 17,800 and 70,600 euros.
- High-Earner Adjustments (“Reichensteuer”): The existing 45 percent tax rate will apply starting at a taxable income of 250,000 euros, down from 277,826 euros. Simultaneously, a new super-rich tax tier of 47 percent takes effect at the 280,000-euro threshold.
- Employee Lump-Sum Allowance (Arbeitnehmer-Pauschbetrag): The deduction for professional expenses like commuting and office supplies increases from 1,230 euros to 1,430 euros for all employed workers.
- Family Benefits: Monthly child benefits (Kindergeld) increase from 259 euros per child to 267 euros next year and 272 euros by 2028. The child allowance (Kinderfreibetrag) moves from 9,756 euros to 10,056 euros, then to 10,236 euros.
- Sunday and Holiday Work: The base wage limit for tax-free Sunday, holiday, and night shift bonuses increases from 50 to 75 euros. Meanwhile, tax write-offs for tradespeople services see a slight reduction.
Projected Financial Relief for Households
Net financial relief accounts for the offsetting revenue measures enacted alongside the cuts.
A typical working family with two children and a taxable combined income of 60,000 euros can expect an annual reduction of roughly 600 euros by 2028. For instance, a household comprising a nursing professional and a bus driver each earning 2,800 euros gross monthly with two children will save 632 euros annually by 2028. Single earners, such as engineers grossing 5,000 euros monthly, will also experience calculated adjustments as the legislation moves toward parliamentary implementation.