Upcoming Tax Overhaul: These Modifications Will Precede the 2025 Elections
Here's a refreshed take on the tax relief updates:
Coalition Partners Agree on Tax Breaks
In a surprising turn of events, the parties involved in the now-collapsed traffic light coalition — the SPD, Greens, and FDP — have reached an agreement on a relief bill intended to ease the burden on taxpayers. This bill, passed in the final sessions of the Bundestag and Bundesrat in late 2024, consists of the following key points:
Amending the "Cold Progression"
Starting January 1, 2025, the basic tax-free allowance will increase, and the income tax rate brackets will be refund-friendly. This change will boost the tax-free subsistence minimum to €12,096 for singles in 2025 (an increase of €312 compared to previous years), and further to €12,348 in 2026 (an additional €252). In addition, the top tax rate will only apply from a taxable income of €68,430 in 2025, versus the current €66,779, aiming to combat "cold progression" and delay the onset of the next higher tax rate.
Reducing Solidarity Surcharge Burden
To diminish the impact of the traditional "Soli," the tax-free threshold has been raised once more in 2025, just as it was in the previous year. This means that the 5.5 percent supplementary tax on income tax liability will no longer be due for individuals with an assessed income below €19,950 (singles) and €39,900 (jointly assessed partners).
Enhanced Child Benefits
Child benefit will undergo an increase of €5 per child to €255 per month in 2025, and further up to €259 in 2026. The child immediate supplement for low-income families eligible for social benefits will rise by €5 as well.
Raised Child Allowance
The child allowance, which can be claimed instead of child benefit, will increase by €60 to €6,672 in 2025 and further by €156 to €6,828 in 2026.
Staying Ahead of the Game
The relief bill received the go-ahead from the Bundestag and Bundesrat on December 19 and 20, 2024, and will take effect on January 1, 2025, contrary to the assumptions of many experts, who expected these updates only after the federal election on February 23, 2025.
Find out more: Amazon, eBay & Co: The Rise of Online Sellers and the Taxman
In the tax relief updates, business owners can anticipate a boost in their financial position due to the enhanced child benefits and increased basic tax-free allowance. Furthermore, the reduced Solidarity Surcharge Burden is expected to bring relief in financing for individuals earning less than €39,900 per year.
