Germany approves 2027 income tax reform and minijob changes

The German Federal Cabinet has approved a draft for the 2027 income tax reform, aimed at providing approximately 10 billion euros in annual tax relief, primarily targeting small to medium incomes and families. The reform is scheduled to begin on January 1, 2027, with full effect expected by 2028.

Key measures include increasing the basic tax-free allowance to 12,564 euros in 2027 and 12,900 euros in 2028. Families will see benefits through increased child benefits (Kindergeld), rising from 259 to 267 euros per month in 2027 and reaching 272 euros in 2028. Additionally, the standard deduction for employees is set to rise from 1,230 to 1,430 euros.

Regarding minijobs, the cabinet approved a proposal to increase the flat-rate tax from two to five percent starting January 1, 2027. While this affects the tax rate, the monthly earnings limit for minijobs will also rise to 633 euros in 2027, driven by an increase in the statutory minimum wage to 14.60 euros per hour. Whether retirees see a reduction in net income depends on whether employers absorb the tax increase or deduct it from gross wages.

The draft must still pass through the Bundestag and Bundesrat before becoming law.