- Germany approved a €10 billion tax reform that starts in 2027 and reaches full effect in 2028.
- Families will see higher child benefit and tax-free allowances, with a middle-income two-child household gaining more than €600 yearly by 2028.
- Top earners face higher taxes as a 47% rate above €280,000 is added, pending Bundestag and Bundesrat approval.
Germany’s cabinet approved a €10 billion income-tax reform on September 2, 2026, sending a two-stage package toward parliamentary approval. The plan directs most relief to low- and middle-income households, particularly families with children.
Finance Minister Lars Klingbeil of the SPD said the package would ease pressure on households with children.
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“We are providing relief to families with children.”
The measures begin in 2027 and reach their full effect in 2028. The finance ministry estimates that a middle-income family with two children will have more than €600 a year in additional relief from 2028.
The cabinet vote does not make the package law. The draft must still pass the Bundestag and Bundesrat, with the coalition targeting a start date of January 1, 2027.
The government says the package shifts support toward ordinary earners and families while partly covering its cost through higher taxes on very high incomes. The plan faced criticism inside the coalition before the cabinet moved ahead.
Families receive staged increases while top earners face higher rates
The main household measures increase payments and expand the amount of income exempt from tax. The higher rates apply at specified taxable-income thresholds.
| Measure | Current level | 2027 | 2028 |
|---|---|---|---|
| Child benefit per child per month | €259 | €267 | €272 |
| Basic tax-free allowance | €12,348 | €12,564 | €12,900 |
The 45% top rate would begin at taxable income of €250,000. A new 47% rate would apply to annual income above €280,000.
That structure gives the package two distinct targets. Families and lower- and middle-income taxpayers receive the direct increases, while the highest earners face additional charges.
The package divides its €10 billion cost across two years
The government describes the relief as €10 billion by 2028. About €3 billion would take effect in 2027, followed by about €7 billion in additional relief in 2028.
The draft also raises the employee lump-sum and changes the income-tax schedule. Those provisions sit alongside the payment and allowance increases.
The ministry’s family estimate applies to a middle-income household with two children. It projects more than €600 in extra annual funds from 2028, when the package is fully implemented.
A mini-job tax change starts on January 1, 2027
The draft would also increase the flat tax rate for mini-jobs from 2% to 5%. That change is scheduled to begin January 1, 2027, subject to the parliamentary process.
The reform’s rollout therefore has two dates. The first measures are planned for 2027, while the full package takes effect in 2028.
The draft follows a summer coalition agreement and ministry publication
The package follows a coalition agreement reached on July 1, 2026. The Federal Finance Ministry published the draft Income Tax Reform Act 2027 on August 18, 2026.
The cabinet approval marks the first formal stage of the legislation. Members of the Bundestag and Bundesrat will now consider the draft before the planned January 1, 2027, start date.
The government has framed the reform as relief for families and lower- and middle-income taxpayers, financed in part by the new 47% bracket above €280,000. Its final form depends on the next votes in Germany’s federal legislative process.
