The German Federal Government has introduced a draft bill for income tax reform for 2027 (Einkommensteuerreformgesetz 2027, Bundestagsdrucksache 21/8235). According to a press release by the German Bundestag dated September 30, the draft provides for increases in child benefits (Kindergeld) and tax-free allowances. Government calculations estimate total tax relief for 2027 and 2028 exceeding 10 billion euros.
- Monthly child benefits (Kindergeld) are proposed to rise from 259 to 267 euros in January 2027 and to 272 euros in January 2028.
- The basic tax-free allowance (Grundfreibetrag) is slated to increase to 12,564 euros in 2027 and to 12,900 euros in 2028.
- The outlined measures represent parameters of a legislative draft.
Child Allowances and Tax-Free Thresholds
In addition to Kindergeld, the draft provides for an increase in the tax-free child allowance (Kinderfreibetrag) from 6,828 to 7,128 euros. Combined with the allowance for care, upbringing, or educational needs of 2,928 euros, the total tax-exempt amount per child would reach 10,056 euros. These figures constitute income tax deductions rather than direct cash benefit disbursements.
According to the Bundestag report, key proposed changes include:
| Measure | Proposed Draft Regulation |
|---|---|
| Basic personal allowance (Grundfreibetrag) | From 12,348 to 12,564 euros in 2027; to 12,900 euros in 2028 |
| Employee standard deduction (Arbeitnehmer-Pauschbetrag) | From 1,230 to 1,430 euros |
| Top income tax bracket rate (Reichensteuer) | 45% for taxable income from 250,000 euros; 47% from 280,000 euros |
| Tax deduction for tradesperson services (Handwerkerleistungen) | Reduction from 20% to 15% of eligible labor costs; maximum amount from 1,200 to 900 euros |
| Flat tax rate for mini-jobs (Pauschalsteuer Mini-Job) | From 2% to 5% |
Work Bonuses and Budgetary Impact
For calculating tax exemptions on bonuses for work on Sundays and public holidays, the draft proposes raising the maximum eligible basic hourly wage from 50 to 75 euros effective January 1, 2027. For night work, the cap is set to remain at 50 euros. This adjustment pertains strictly to the assessment base rather than the bonus amount paid out.
The federal government estimates tax revenue reductions at 4.515 billion euros in 2027 and 6.02 billion euros in 2028. Separately, social security revenue losses resulting from the changes to Sunday and holiday bonuses are estimated at 300 million euros annually.