Germany’s 2027 Tax Overhaul: Interest Doubles, Minijob Workers Face Mandatory Pension Contributions

Millions of Germans working in low-hour “Minijob” positions will soon be required to pay into the state pension system under a sweeping package of tax reforms unveiled by the Berlin coalition. The changes, contained in the draft Annual Tax Act 2026 (JStG 2026), also include a sharp increase in interest rates on overdue tax payments and a fresh crackdown on tax evasion.

Starting 1 January 2027, the monthly interest rate on tax arrears and refunds will rise from 0.15 percent to 0.3 percent, lifting the annual rate from 1.8 percent to 3.6 percent. The government justified the leap by pointing to the general rise in interest levels. For a taxpayer facing a 10,000-euro back payment, the annual interest charge will jump from 180 euros to 360 euros. Berlin expects the change to generate an additional 60 million euros in 2027 alone, and more than 600 million euros annually from 2031 onward.

The pensions pillar is perhaps the most striking shift for the country’s army of 6.8 million Minijob workers — those earning up to 538 euros per month. Under a recommendation from the Commission for Old-Age Security, these jobs will become compulsorily insured under the statutory pension scheme. Currently, fewer than 21 percent of Minijobbers contribute to the pension fund; the rest have the option to opt out. That opt-out will disappear. Only schoolchildren will be exempt from the new rule.

Adjustments to the taxation of retirement income also feature. Since 2023, the share of a pension subject to tax has been increasing by just 0.5 percentage points per year instead of a full percentage point. That slower pace means full pension taxation is now expected only from 2058. The reform particularly benefits the 1975–1980 birth cohorts, who will see a gradual reduction in their tax burden over time.

Stiffer penalties for cheats

In mid-July, Finance Minister Klingbeil and Justice Minister Hubig published a 26-point action plan against tax crime. The centerpiece is the abolition of the so-called “self-disclosure” rule that allows offenders to escape punishment by voluntarily reporting their evasion. Going forward, self-disclosure will only reduce the sentence, not eliminate it. A new criminal offense for serious tax evasion — carrying a minimum penalty of one year in prison — is also on the table.

Other measures in the plan include:

• Extending the retention period for booking receipts from 10 to 15 years
• Creating a public register of sanctioned companies
• Setting up a joint center for combating tax crime within the customs service
• Expanding the use of artificial intelligence by the tax administration

A chorus of critics

Reaction to the tax proposals has been mixed. Business associations and advisory bodies — among them the German Tax Advisers Association (Deutscher Steuerberaterverband) and the Federal Chamber of Tax Advisers (Bundessteuerberaterkammer) — have voiced complaints about specific provisions in the Annual Tax Act, especially the planned method for allocating purchase prices on real estate and the administrative hurdles in the turnover tax group (Organschaft) rules.

The Rhineland-Palatinate Chamber of Industry and Commerce (IHK Rheinland-Pfalz) warned that a possible increase in the top income tax rate — currently under debate at 42 percent, with some in the government pushing for 47 percent — could undermine the competitiveness of mid-sized companies. The opposition, by contrast, is demanding a radical tax cut reminiscent of historical rates, with the top rate falling well below 30 percent.

The Taxpayers’ Association (Bund der Steuerzahler) criticized the lack of inflation adjustment, while trade union representatives cautioned that the tax authorities may lack the capacity to enforce the new rules. Legal experts also pointed to potential negative effects on corporate compliance structures stemming from the stricter anti-fraud measures.

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