German Government Proposes Income Tax Reforms for 2027
The German government has introduced a bill for the Income Tax Reform Act 2027. The proposal includes increases to the basic allowance, child allowance, and employee lump-sum, alongside adjustments to child benefit and tax rates.
Berlin – The German Federal Government submitted a bill for the Income Tax Reform Act 2027 to the Bundestag on September 28, 2026. The proposed legislation includes several changes, such as increases to the basic personal allowance and child allowance, a higher lump-sum allowance for employees, and adjustments to child benefits and tax brackets.
Key changes include raising the maximum tax-exempt amount for Sunday and public holiday supplements from EUR 50 to EUR 75 starting January 1, 2027. The lump-sum allowance for employees is set to increase from EUR 1,230 to EUR 1,430 for the 2027 assessment period, which will immediately reduce wage tax liabilities.
The basic personal allowance is scheduled to rise to EUR 12,564 for 2027 and EUR 12,900 for 2028. The child allowance will increase by EUR 150 to EUR 3,564 for 2027, and by a further EUR 90 to EUR 3,654 in 2028. Consequently, child benefit payments will also be raised by EUR 8 to EUR 267 per month from January 1, 2027.
Furthermore, the bill aims to flatten the second progression zone of income tax rates and introduces a higher top tax rate. The 45% tax rate will apply from an annual income of EUR 250,000, down from EUR 277,826. The deductibility for craftsmen's services will be reduced from 20% to 15%, and the flat tax rate for mini-jobs will increase from 2% to 5%.