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2024 Tax Changes at a Glance!

As of January 1st, 2024, several tax changes will come into force. We give you an overview of the most important tax changes for 2024 and tell you how they will impact your 2024 tax return!

Please note

This year it takes a bit longer: Due to the ruling of the Federal Constitutional Court (Bundesverfassungsgericht) on November 15th, 2023, regarding the supplementary budget for 2021 (Nachtragshaushalt 2021), not only is the federal budget for 2024 delayed, but also the 2023 Annual Tax Act (Jahressteuergesetz 2023). It is expected to be adopted in January 2024. The draft for the Wachstumschancengesetz (Act for Growth and Opportunities) also includes many tax changes but has been referred to the Mediation Committee (Vermittlungsausschuss) by the Bundesrat (Federal Counsil).

However, some tax changes for 2024 are already confirmed. We will update the list as soon as the additional tax changes for 2024 will be adopted!

These are the Tax Changes for 2024:

Employee Savings Allowance: Income Threshold Raised

The income threshold for eligibility for the Employee Savings Allowance (Arbeitnehmer-Sparzulage) will be doubled as of January 1st, 2024. With a maximum taxable annual income of now 40,000 euros (individual assessment), or 80,000 euros (joint assessment), you can apply for the allowance in your tax return. Due to this expansion, approximately 14 million more employees are eligible.

The Employee Savings Allowance is a government subsidy for asset-building benefits (vermögenswirksame Leistungen) that you negotiate with your employer.

Basic Allowance (Grundfreibetrag) Increased

The tax-free basic allowance (steuerlicher Grundfreibetrag) secures the subsistence minimum and is raised annually. As of January 1st, 2024, it is being increased by 696 euros from 10,908 euros (2023) to 11,604 euros. Only income exceeding this amount is subject to taxation, starting with an initial tax rate of 14%. For married couples filing a joint tax return, the double basic allowance always applies, amounting to 23,208 euros in 2024.

Income Tax Rate Adjusted

To mitigate the effect of the so-called cold progression (kalte Progression), tax rate thresholds (Steuertarif-Eckwerte) are annually shifted to the right. In 2024, they will be raised by 6.3%. In 2024, the top tax rate (Spitzensteuersatz) will therefore apply to an annual income of 66,761 euros (2023: 62,810 euros). Only the maximum tax rate (“wealth tax rate” or “Reichensteuersatz”) will continue to start at an annual income of 277,826 euros.

Cold progression is a term used to describe the fact that taxpayers are taxed at a higher rate due to an increase in income that is actually intended to compensate for inflation. The German tax system is progressive: the tax rate increases with income. Without adjusting the basic parameters, the higher income would be wasted.

Alimony Payments: Deductible Maximum Amount Increased

You can deduct alimony payments for ex-spouses or dependent persons (e.g. adult children that are not entitled to child benefits (Kindergeld) anymore) either as special expenses (Sonderausgaben) or as extraordinary expenses (außergewöhnliche Belastungen). Different maximum amounts apply. The deduction as special expenses is possible up to 13,805 euros. The deduction as extraordinary expenses is linked to the basic tax-free allowance. It therefore increases from 10,908 euros (2023) to 11,604 euros (2024). In both cases, you can additionally deduct contributions to basic health and long-term care insurance (Basiskranken- und Pflegeversicherung).

Please note: The deduction as special expenses is only possible for ex-married couples.

Child Allowance (Kinderfreibetrag) Increased

Child allowances consist of two components:

  • Child allowance (Kinderfreibetrag) and
  • Allowance for care, education, and training needs (Betreuungs-, Erziehungs- und Ausbildungsbedarf, abbreviated as BEA)

As of 2024, the child allowance will be increased by 360 euros to a total of 6,384 euros per year. Per parent, it amounts to 3,192 euros. Including the BEA, the total child allowance for 2024 is raised to 9,312 euros. Child benefits (Kindergeld) remain consistently at 250 euros per child.

Nursing Care Allowance & Nursing Care Services Increased

Those with at least care level 2 (Pflegegrad 2), who are cared for by family members, friends, or volunteers, are entitled to care allowance (Pflegegeld). The care allowance is staggered according to the level of care and is paid monthly by the care insurance fund (Pflegekasse) to the insured person.

Individuals who are not cared for by relatives but by a professional care service (Pflegedienst) are entitled to nursing care services (Pflegesachleistungen) instead of care allowance. The same requirements apply. Both benefits - care allowance and nursing care services - will be increased as of January 1st, 2024.

Care Level Care Allowance Nursing Care Services
Care level 2 332 euros (before: 316 euros) 761 euros (before: 724 euros)
Care level 3 573 euros (before: 545 euros) 1,432 euros (before: 1,363 euros)
Care level 4 765 euros (before: 728 euros) 1,778 euros (before: 1,693 euros)
Care level 5 947 euros (before: 901 euros) 2,200 euros (before: 2,095 euros)

Please note: Are you taking care of relatives and applying for the Long-Term Care Lump Sum? In that case, you are not allowed to receive care allowance from the person being cared for as a financial compensation. You are only permitted to keep their care allowance to buy them medical devices, for example, but you cannot keep the care allowance for yourself.

1,095 euros back in your pockets

That’s why you should submit your German tax return

Gastronomy: Value Added Tax for Food Returns to 19%

To alleviate the restaurant industry during the COVID-19 pandemic, a reduced value-added tax rate (Mehrwertsteuersatz) for food was in effect from July 2020 until the end of December 2023. As of January 1st, it will be increased from the previous 7% back to the regular VAT of 19%.

Minimum Wage & Mini-Job Threshold Increase

The Federal Government follows the decision of the Minimum Wage Commission (Mindestlohnkommission): as of January 1st, 2024, the statutory minimum wage (gesetzlicher Mindestlohn) increases from the current 12 euros to 12.41 euros per hour. From January 1st, 2025, it is set to rise further to 12.82 per hour.

Simultaneously, the earnings threshold for mini-jobs increases from 520 euros to 538 euros per month.

Solidarity Surcharge: Exemption Limit Increased

In 2021, the solidarity surcharge (Solidaritätszuschlag) was abolished for 90% of taxpayers after 30 years. However, those exceeding the annual exemption limit (Freigrenze) still need to pay the solidarity surcharge. As of January 1st, 2024, this exemption limit was raised from previously 17,543 euros to 18,130 euros. In case of joint assessment, the exemption limit is doubled.

Energy

CO2 Price Rises

As of January 2024, the cost for one ton of heating oil, gas, and fuel will be 45 euros. Due to the energy crisis, the price had remained at 30 euros per ton in 2023. Therefore, refueling and heating will become more expensive in 2024. The increase in the CO2 price aims to support the shift to eco-friendly heating and fuel.

Electricity and Gas Price Cap Expires

The government subsidies for electricity and gas will end on January 1st, 2024, which is three months earlier than the government had yet decided in November. The energy price cap (Energiepreispremse) was introduced on March 1st, 2023, as a response to the energy crisis due to Russia’s invasion of Ukraine. The price cap had limited the electricity price at 40 cents per kilowatt hour and the gas price at 12 cents per kilowatt hour.

December Aid 2022 Becomes Tax-Free

Due to the sharply increased gas prices, the German government took over the advance payment for gas and heat in December 2022, providing relief to private households and small to medium-sized businesses. Originally intended to be taxed, the Bundestag has now decided that this Dezemberhilfe will be tax-free.

Tax Return Deadlines

If you are required to file a tax return, the following deadlines apply:

  • 2023 Tax Return: Due on September 2nd, 2024
  • 2024 Tax Return: Due on July 31st, 2025

Other Planned Tax Changes

The Wachstumschancengesetz (Act for Growth and Opportunities) and the Kreditzweitmarktförderungsgesetz (Credit Secondary Market Promotion Act) include additional tax changes that still need to be discussed and decided. Among them are the following planned changes:

Altersentlastungsbetrag Decreases More Slowly

The Altersentlastungsbetrag (Old-Age Relief Amount) is a tax allowance (Freibetrag) that individuals aged 64 and above receive for their fully taxable income. The calculation is based on a fixed percentage and an annual maximum amount, both decreasing by 0.8% each year. As of 2023,, the percentage is intended to decrease by only 0.4% annually. Consequently, the maximum amount will decrease by only 19 euros per year from 2023 on, instead of previously 38 euros.

Pension Taxation Reform (Reform der Rentenbesteuerung)

To avoid double taxation (Doppelbesteuerung) of pensions, the German government plans to gradually tax retirement benefits in full only as of 2058 instead of 2040. Starting in 2023, the taxable portion of retirement benefits will increase annually by only 0.5% instead of 1%. Those retiring in 2023 therefore need to declare 82.5% of their pension income for taxation instead of previously 83%.

Exemption Limits for Low Rental Income & Private Sales Transactions

A tax-free exemption limit will be introduced for rental income. If your total rental income does not exceed 1,000 euros per year, it will remain tax-free.

Simultaneously, the exemption limit for private sales transactions (private Veräußerungsgeschäfte) will be raised from 600 euros to 1,000 euros.

Increase in Meal Allowance (Verpflegunspauschale)

If you are an employee on a business trip, you are entitled to a meal allowance (Verpflegungspauschale). If your travel exceeds 8 hours, you receive 14 euros, the same applies to days of arrival and departure. For absences exceeding 24 hours, you receive 28 euros. As of 2024, the allowance is planned to be raised to 16 euros and 32 euros.

Reliefs for Companies and Entrepreneurs

Asset Depreciation (Abschreibung für Abnutzung, short: AfA)

  1. Companies can again depreciate movable fixed assets (bewegliche Wirtschaftsgüter) acquired or manufactured between October 1st, 2023, and December 31st, 2024, using a declining balance method (degressive Abschreibung). Due to the pandemic, this was also possible in 2020, 2021, and 2022.

  2. GWG Threshold: Low-value assets (Geringwertige Wirtschaftsgüter, short: GWG) up to 800 euros per asset can be immediately depreciated. As of 2024, the threshold is planned to be raised to 1,000 euros.

  3. For the depreciation of collective items (Sammelabschreibung), the costs for each single asset were previously capped at 1,000 euros, with a depreciation period of 5 years. The new regulation proposes raising the limit for single assets to 5,000 euros, with a shortened depreciation period of 3 years.

VAT Return & Advance Payment

If your taxes as a business owner did not exceed 2,000 euros in the previous year, you will no longer be required to submit a VAT advance notification (Umsatzsteuer-Voranmeldung) or make advance payments (Umsatzsteuer-Vorauszahlung). Previously, the threshold for this exemption was 1,000 euros.

Small business owners are expected to be exempt from submitting VAT returns (Umsatzsteuererklärung) in the future.

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