2024 Tax Changes at a Glance!

These tax changes 2024 tax were already in force:

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.

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.

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.

What is the Wachstumschancengesetz All About?

The Growth Opportunities Act (“Gesetz zur Stärkung von Wachstumschancen, Investitionen und Innovation sowie Steuervereinfachung und Steuerfairness”) aims to strengthen the German economy, enhance competitiveness, and simplify investments and innovations. It particularly benefits small and medium-sized enterprises by providing tax relief and simplification of bureaucratic processes.

The original draft law included numerous additional tax changes, some of which were amended or not included in the proposal of the mediation committee (Vermittlungsausschuss) during the mediation process between the Bundesrat and the Bundestag. Notably, the Tax Act lacks the introduction of an investment grant (Investitionsprämie) aimed at transitioning the economy towards climate protection.

When Does the Growth Opportunities Act Come Into Effect?

The Bundestag approved the significantly reduced compromise proposal from the mediation committee on February 23rd, 2024, followed by the Bundesrat’s approval on March 22nd, 2024. On March 27th, 2024, the law was published in the Federal Law Gazette (Bundesgesetzblatt) and came into effect the following day.

Tax changes from the Growth Opportunities Act

Pensions (Rente): Full Taxation Only From 2058

To avoid double taxation (Doppelbesteuerung) of pensions, pensions will be fully taxed only from 2058 instead of from 2040 onwards. 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%.

Altersentlastungsbetrag Decreases More Slowly

Parallel to the slower increase in the taxable pension component, the Altersentlastungsbetrag is also decreasing 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 decreases 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 Allowance and Supplement to Pension Allowance

In line with changes to retirement taxation and old age relief amount, the pension allowance (Versorgunsgfreibetrag) and the supplement to pension allowance (Zuschlag zum Versorgungsfreibetrag) are also adjusted. As of 2023, the percentage used to calculate the pension allowance will decrease by 0.4 percent annually, instead of the previous 0.8 percent. Consequently, the tax-free maximum amount decreases by 30 euros annually starting from 2023, and the supplement to the pension allowance decreases by 9 euros annually.

Similarly, this adjustment will only be reflected in the monthly income tax deduction (Lohnsteuerabzug) starting from 2025. The changes for 2023 and 2024 will only be considered in the context of your tax return!

The pension allowance is an income tax exemption for pension benefits (Versorgungsbezüge), such as civil servant pensions (Beamtenpensionen) and company pensions (Betriebsrenten), corresponding to the tax-free portion of statutory pensions (gesetzliche Renten).

One-Fifth Method: Only Applicable Within Your Tax Return

For extraordinary earnings (außerordentliche Einkünfte) such as a severance payment (Abfindung) or compensation for multi-year activities (Vergütung für mehrjährige Tätigkeit), the so-called one-fifth method can be applied, which is often more favorable for tax purposes than a taxation at once. However, as of 2025, the one-fifth method can no longer be applied within the wage tax deduction procedure, but only within the tax return.

Threshold for Private Sales Transactions Increased

The annual threshold (Freigrenze) of 600 euros for income from private sales transactions (private Veräußerungsgeschäfte) is raised to 1,000 euros. Married couples filing separately are entitled to 1,000 euros of tax-free gains each.

Overnight Allowance for Truck Drivers Increased

For truck drivers who stay overnight in their vehicles, the lump sum increases from 8 euros to 9 euros as of January 1st, 2024.

Tax Changes for Companies and Entrepreneurs

Asset Depreciation (Abschreibung für Abnutzung, short: AfA)

Companies can again depreciate movable fixed assets (bewegliche Wirtschaftsgüter) acquired or manufactured between April 1st, 2023, and December 31st, 2024, using a declining balance method (degressive Abschreibung). (In the draft law, it was October 1st, 2023, to December 31, 2024.) The Second and Fourth Corona Tax Relief Acts have already allowed for the declining depreciation of movable assets for 2020, 2021, and 2022. However, this time the percentage rate is limited to a maximum of 20 percent (in the draft law: 25 percent).

Gifts to Business Partners

As of January 1st, 2024,the tax-free threshold for gifts to business partners will be increased from 35 euros to 50 euros per person per year to offset inflation. Gifts up to 50 euros can be fully deducted as business expenses (Betriebsausgaben) for tax purposes. Gifts exceeding the threshold must be fully taxed.

Value Added Tax (VAT): Higher Threshold for Ist-Besteuerung

The turnover threshold (Umsatzgrenze) for applying Ist-Besteuerung (actual taxation) has been increased: as of 2024, business owners can opt for actual taxation if their previous year’s turnover is below 800,000 euros (previously: 600,000 euros). Actual taxation means that VAT is only paid to the tax authorities when it is actually received by the entrepreneur. Therefore, the entrepreneur no longer has to pay VAT in advance.

Freelancers using the Einnahmen-Überschuss-Rechnung (income-surplus calculation method) are always eligible for actual taxation.

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.

• As of 2024, small business owners (Kleinternehmer) are generally exempt from submitting VAT returns (Umsatzsteuererklärung). Please note: This exemption applies only as long as the small business regulation (Kleinunternehmerregelung) is applied.

E-Rechnung: Obligation for Electronic Invoices

As part of the ViDA process (VAT in the Digital Age) for unified EU VAT registration, domestic companies in the B2B sector (Business-to-Business) are required to use electronic invoices starting from January 1st, 2025. Invoices are considered electronic only if they are created, sent, and stored in a structured electronic format according to Directive 2014/55/EU. Transitional rules apply for the years 2025 to 2027, which will be abolished from 2028 onward.

Improvement in Loss Carryforward (Verlustvortrag)

Losses (Verluste) can be carried forward to subsequent years and deducted without limitation up to a total income of 1 million euros (2 million euros for jointly assessed couples). When losses exceed this amount, the deduction of the excess is restricted: the excess loss can be deducted up to 60 percent of the total income. From 2024 to 2027, there’s a temporary improvement: losses exceeding 1 million euros (or 2 million euros) can be deducted up to 70 percent of the total income.

These Planned Tax Changes Were Not Implemented

• The premium for investments in climate protection (Klimaschutz-Prämie) is postponed again.
• A tax-free exemption limit for rental income up to 1,000 euros per year will not be introduced.
• The domestic Verpflegungspauschale (Meal Allowance) will not be increased.
• There will be no higher GWG-Grenze (GWG Threshold) for the immediate depreciation (Sofortabschreibung) of low-value assets (geringwertige Wirtschaftsgüter).
• For the depreciation of collective items (Sammelabschreibung)neither the depreciation period nor the limit for single assets will be increased.