Germany’s 2027 Tax Package Promises Relief — But Rising Social Charges Could Erase Gains
Published on 07/11/2026 at 22:53 | Redaktion boerse-global.de
Economists at the University of Erlangen-Nuremberg have crunched the numbers on the coalition government’s latest tax and social-security reforms, and the verdict is mixed. Their modelling shows that for many income groups, the combination of tax cuts scheduled for 2027 and projected increases in social contributions could leave workers with less net pay by 2028. The main culprit: a forecast rise in the pension insurance contribution rate to 19.9 percent that year. While families on moderate incomes might see a slight gain from higher allowances, single earners with gross monthly salaries above €3,000 are likely to face a net loss.
The reform package, hammered out by the coalition committee, aims to deliver broad relief starting in 2027. The employee lump-sum deduction (Arbeitnehmerpauschbetrag) will rise by €200 to €1,430. The basic tax-free allowance is set to climb to €12,900 by 2028. Child benefit will increase to €259 per month in 2027 and €272 in 2028. The tax-free threshold for Sunday, public holiday and night-work supplements will be expanded from €50 to €75 per hour.
To finance these measures, the government is tightening the screw on top earners: a new “wealthy tax” rate of 45 percent kicks in at €250,000 of annual income, rising to 47 percent above €280,000. The flat-rate tax on mini-jobs (Minijobs) will more than double, from 2 percent to 5 percent. Meanwhile, a separate law to stabilise health-insurance contributions has been passed by the Bundestag, introducing higher co-payments for prescription drugs and a new contribution surcharge for spouses who are not covered under family insurance.
One headline promise from the coalition agreement — tax-free overtime supplements — remains stalled. Originally slated for early 2026, the legislation has yet to be enacted. The plan would exempt overtime bonuses of up to 25 percent of the base hourly wage, but only for full-time employees working between 34 and 40 hours a week. According to official data, the average worker puts in 28.2 hours of overtime per year, of which only 13.1 are paid. For someone earning €3,000 gross, the tax break would amount to roughly €30 annually. Trade unions have sharply criticised the exclusion of part-time staff, noting that women are disproportionately affected.
Until the reform takes full effect, employers continue to rely on existing tax-advantaged fringe benefits to boost employees’ net income. The most popular tool is monthly non-cash benefits (Sachbezüge), often delivered via prepaid cards, with a tax-free limit of €44 to €50. Other options include a €50 monthly internet allowance for private use, a one-off €156 annual recreation subsidy under certain conditions, and tax-free gifts for personal occasions up to €60. Employer-mandated contributions to company pension plans — 15 percent of any salary conversion amount — also remain a staple. For larger payments, the tax code allows special bonuses of up to €10,000 to be taxed at a flat rate of 30 percent, well below the standard income-tax bracket.
Family-run businesses and craft enterprises face tighter scrutiny when employing relatives. Tax authorities insist that employment contracts be written and meet the “arm’s length” test — meaning terms must mirror those that would apply to an unrelated third party. A separate update in the 6 Annual Tax Act (Jahressteuergesetz 2026) retroactively sets the ceiling for the research grant (Forschungszulage) at €25 million from the start of the year, a move intended to spur innovation among small and medium-sized firms.
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