Germany approves tax reform and child benefit increases

The German Federal Cabinet has approved a draft for an income tax reform intended to begin in 2027, with full effects expected by 2028. The plan includes increasing the basic tax-free allowance to 12,564 euros in 2027 and 12,900 euros in 2028, alongside higher child allowances and an increased employee lump-sum allowance.

Specifically, child benefits (Kindergeld) are set to rise in two stages: from the current 259 euros to 267 euros in 2027, and eventually to 272 euros per month by 2028. This represents an annual increase of 156 euros per child compared to 2026 levels.

However, the reform faces scrutiny. While the government aims to provide relief for small and middle-income families, rising contributions to pension, health, and long-term care insurance may offset these tax savings. Some critics argue that the net financial benefit for workers could be minimal or even negative. Additionally, there is public debate regarding the potential removal of the 25-euro child supplement (Kinderzuschlag) and the rising costs of school supplies, which saw a 6.2 percent increase in spending for the 2026 school year.