Germany approves income tax reform aimed at middle-income relief

The German Federal Cabinet has approved a draft for an income tax reform intended to provide relief for small and middle-income earners. The measures are scheduled to begin in 2027, with full effects expected by 2028. Key components of the plan include increasing the basic tax-free allowance to 12,564 euros in 2027 and 12,900 euros in 2028, raising the employee lump-sum allowance, and increasing child benefits.

However, recent calculations suggest that the actual financial benefit for many employees may be lower than anticipated. While the tax burden is intended to decrease, rising contributions to pension, health, and long-term care insurance may offset these gains. In some instances, workers could see a net decrease in disposable income despite the reform's objectives.