Overview of the tax changes from January 1st, 2025

Tax exemption for the subsistence minimum and compensation for cold progression

After the retroactive increase in the basic allowance for 2024 by 180 euros to 11,784 euros and the also retroactive increase in the tax child allowance for 2024 by 114 euros to 3,306 euros per parent, there will also be changes to the basic allowance and the tax child allowance for 2025.

By increasing the basic allowance integrated into the income tax tariff by 312 euros to 12,096 euros, the tax exemption of the subsistence minimum of taxable citizens will be guaranteed from 2025. At the same time, the increase compensates for the effects of the so-called cold progression.

In order to fully compensate for the cold progression, with the exception of the benchmark for the so-called “rich tax”, the tariff benchmarks will be shifted to the right by 2.6 percent to the extent of the relevant inflation rate for 2025 (2026: 2 percent).

According to the case law of the Federal Constitutional Court, when taxing families, an amount of income equal to the material subsistence minimum of a child plus the needs for care and upbringing or training may not be taxed. The tax allowance for children will be increased by 30 euros to 3,336 euros per parent for 2025. Together with the allowance for care and upbringing or training needs (1,464 euros), the amount used to exempt the child's subsistence minimum from tax is increased to a total of 4,800 euros per parent or 9,600 euros per child.

In addition, the child benefit will be increased from the previous 250 euros by 5 euros to 255 euros per child per month on January 1, 2025.

Overview allowances

Increasing the exemption limits for the solidarity surcharge

From 2021, the solidarity surcharge will be completely eliminated for around 90 percent of those who have paid the solidarity surcharge of 5.5 percent of the wage tax or assessed income tax due to the increase in the existing exemption limit. The exemption limit refers to the assessment basis of the solidarity surcharge, i.e. the wage tax or assessed income tax. The exemption limit of 36,260 euros will be raised to 39,900 euros for 2025 (2026: 40,700 euros). The increase in the exemption limit also leads to a shift in the so-called mitigation zone, in which those liable to pay wages/income tax who still partially pay the solidarity surcharge are relieved. In the mitigation zone, which adjoins the exemption limit, the average burden of the solidarity surcharge is gradually brought closer to the normal burden of 5.5 percent. This prevents a jump in load when the exemption limit is exceeded. The solidarity surcharge must only be paid in full once the mitigation zone has been exceeded.

Increase in the special expense deduction for child care costs

Up to now, two thirds of the expenses for child care, a maximum of 4,000 euros per child, could be paid for services to care for a child belonging to the taxpayer's household who has not yet reached the age of 14 or because of a physical, mental or physical condition that occurred before the age of 25 mental disability is unable to support oneself, will be taken into account as special expenses. Expenses for lessons, the teaching of special skills as well as for sporting and other leisure activities are not deductible. As a family policy measure, from the 2025 assessment period, the limit will be increased to 80 percent of expenses and the maximum amount of childcare costs that can be deducted as special expenses will be increased to 4,800 euros per child.

Legal perpetuation of the 150 euros simplification regulation for bonus benefits for health-conscious behavior

Statutory health insurance companies include: obliged to determine in their statutes the conditions under which insured persons who make use of services for the detection of health risks and early detection of illnesses or services for vaccinations are entitled to a bonus. Furthermore, they should determine in their statutes the conditions under which insured persons who regularly use health insurance services for behavioral prevention or who take part in comparable, quality-assured offers to promote health-conscious behavior are entitled to a bonus. In order to avoid an administratively complex division, particularly in cases where the bonus models are structured across the board while at the same time generally having a very low tax impact in individual cases, a simplification regulation was created by means of an administrative regulation. According to this, bonus payments up to an amount of 150 euros per insured person per contribution year represent health insurance benefits that do not reduce the special expense deduction. A premium refund is assumed for the excess amount. The taxpayer can, however, prove that the excess amount is also health insurance benefits. This regulation applied to payments made until December 31, 2024 and is now being perpetuated by law because the simplification regulation has proven itself in practice.

Abolition of the loss offsetting restrictions for forward transactions and bad debts

With the deletion of the separate loss offsetting group for futures transactions and the limit on the amount of losses from bad debts that can be offset, the simplification aspect of the withholding tax was given greater validity. The losses can again be fully offset against all income from capital assets. In addition, the constitutional concerns about the restriction on offsetting losses were taken into account.

Longer notification periods for administrative acts, e.g. tax assessment

 For example, if an objection is lodged against a tax assessment, the admissibility of the assessment depends, among other things, on: on timely receipt by the tax office. The date of publication of the notice is important for the deadline and therefore, above all, when it was posted. Previously, a three-day presumption applied, according to which the decision was considered announced on the third day after it was posted. With the Postal Law Modernization Act, the delivery time requirements for the delivery of letters were extended and the relevant notification regulations for the delivery of administrative files were therefore also adjusted, namely by changing the three-day presumption to now four days. If the end of the new four-day period falls on a Saturday, Sunday or a public holiday, the expiry of the period will be postponed to the end of the next working day, as with the previous three-day period. The new regulation applies to all administrative acts that are posted, transmitted electronically or made available electronically for retrieval after December 31, 2024.

Source: https://www.bundesfinanzministerium.de/Web/DE/Home/home.html#collapse436666-0-1

Data accessed on Dec 30, 2024