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This article was written by
Certified Tax Advisor, Manager, National Office Tax & Legal
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
With the planned amendment of Section 3b (2) sentence 1 of the German Income Tax Act (Einkommensteuergesetz; EStG) the maximum admissible basic wage for tax-privileged Sunday and public-holiday supplements is to be raised from currently EUR 50 to EUR 75 as of January 1, 2027. The maximum admissible basic wage for night work shall remain unchanged at EUR 50.
In view of this inconsistency, additional delineation and administrative requirements are likely to arise in payroll accounting and social security law without achieving simplification. It remains to be seen whether adjustments will be made in the further legislative process.
The employee lump-sum (Section 9a sentence 1 no. 1 lit. a EStG) is to be increased from currently EUR 1,230 to EUR 1,430 for the assessment period 2027. The increase is to be taken into account already in wage tax withholding and will therefore immediately reduce wage tax liability.
The much greater simplification and relief for employees and tax administration proposed by the associations with reference to the expert commission “Citizen-oriented Income Tax”, which would result from combining the employee lump-sum, the commuter allowance and the home office allowance into a single workday allowance, has not yet been implemented.
The basic allowance is regularly adjusted for constitutional requirements to exempt the subsistence minimum and to counteract so‑called fiscal drag. It is therefore to increase from currently EUR 12,348 to EUR 12,564 for 2027. For 2028 it is to amount to EUR 12,900.
The child allowance is to be increased by EUR 150 to EUR 3,564 per parent for 2027. In 2028 it is to rise by a further EUR 90 to EUR 3,654.
Due to the increases in the child allowance, child benefit is also to be increased with effect from January 1, 2027 by EUR 8 per month to EUR 267. From January 1, 2028 it is to be increased again by EUR 5 per month to EUR 272.
The so‑called second progression zone between approximately EUR 17,800 and EUR 70,600 of annual income is to be flattened by amending the tariff formula. The so‑called wealth tax of 45% is to apply already from an annual income of EUR 250,000 (previously: EUR 277,826) and is to be tightened with the introduction of an additional tax rate of 47% from an annual income of EUR 280,000.
Currently, costs for craftsmen’s services for renovation, maintenance and modernization measures can be deducted at 20% of the labour costs, up to a maximum of EUR 1,200 (Section 35a (3) sentence 1 EStG). The percentage is to be lowered to 15% and thus to a maximum amount of EUR 900 as of January 1, 2027.
The uniform flat tax rate for so‑called mini‑jobs (Section 40a (2) EStG) will be increased from the current 2% to 5% as of January 1, 2027. Business-related associations have expressed criticism: this would make this type of employment more expensive, imposing additional costs on employers.
If a company maintains permanent establishments in several municipalities, the trade tax base amount is generally to be allocated according to the proportion of wages paid there. For data centers, Section 29 (1) no. 4 of the German Trade Tax Act is to provide for a special allocation formula in future. This is because, despite significant burdens – such as land requirements, effects on the townscape and landscape as well as high energy and water requirements – host municipalities often participate only to a limited extent in trade tax revenue due to the high degree of automation of data centers. In future, the allocation is therefore to be based 10% on wages and 90% on the non-redundant rated electrical connection capacity.