The German government is currently engaged in a vigorous discussion regarding the Increase in Child Benefit for families. The proposal to raise the child tax allowance (Kinderfreibetrag) has sparked controversy, particularly concerning its fairness if the child benefit (Kindergeld) is not simultaneously increased. In the following, we outline the distinctions between the two and analyse which option may be more advantageous for different groups.
Increase in child tax allowance in Germany in 2024
Finance Minister Christian Lindner is pushing for an increase in the child tax allowance (Kinderfreibetrag) without a simultaneous adjustment to the child allowance (Kindergeld), last updated in 2023. However, this proposal has drawn criticism from coalition partners. Government spokesperson Steffen Hebestreit stated in Berlin that they are currently evaluating whether current wage trends warrant a modification to the child tax allowance.
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“If necessary, we need to discuss whether, in addition to child benefit, an adjustment to child tax benefit is necessary and possible,” he said. He also referred to the budget for the current year, which is to be decided in the Bundestag next week.
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Money every month or tax breaks?
The reality is that you can’t avail both options simultaneously: it’s a choice between receiving the child benefit or utilizing the child tax benefit along with an additional care, education, and training allowance when filing your tax return. Fortunately, the inland Revenue follows a citizen-friendly approach and assesses based on the more advantageous principle for the family. If you have filed a tax return, it will compute the option that benefits you the most. Generally, the tax allowance proves more beneficial for families with higher incomes. These are the differences:
- Child benefit: From the beginning of 2023, the child benefit was a flat amount of €250. Parents receive monthly 250 euros per child transferred to their account. No child benefit tax is due. All parents should claim Child Benefit.
- Child Tax Benefits: You can only use Child Benefit if you file a tax return. Together with an additional allowance for care, growth and training needs, this comes to €8,952 (value for 2023), which is offset against your income. The money does not go into your account as a direct grant, but is taken into account when calculating your tax on income. Parents have to pay correspondingly less tax.
The increase in income allowance is criticised
SPD leader Lars Klingbeil criticized Lindner’s current plans as unfair because they would only provide aid to families with very high incomes. “Especially the working middle class, those who wake up every day, work hard to earn their income should be relieved,” Klingbeil said.
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SPD parliamentary group vice-president Sönke Rix said: “The child allowance must also be increased so that families with small budgets benefit. Anything else is unfair.” Green Party MP Andreas Audretsch made a similar statement. “The tax allowance for children must increase in parallel with the child benefit, otherwise it would be unfair,” writes Chip.de.
Child benefit vs allowance for children
We have compiled a sample calculation comparing the Kindergeld child benefit and the tax child benefit for the family with one child and an annual income of €80,000:
- With child benefit: No child benefit tax is due, so your taxable income is €80,000. this results in 15,656 euros in taxes that the family must pay.
- With the tax allowance for children: The calculation is different because the amount of 8,952 euros is deducted from the taxable income, leaving 71,048 euros for which the family must pay tax. It results in taxes in the amount of 12,760 euros.
- More advantageous: At first glance, you save a lot of tax with the tax allowance. More precisely, the fiscal advantage is 2,896 euros. But what you should not forget is the 250 euro child allowance that is given monthly. That is 3,000 euros per year, making the Ca Kindergeld option more advantageous for the family in this example.
Criticism has surfaced regarding the proposed increase in the tax allowance for children, set to reach 9,540 euros. The contention is that this adjustment would primarily benefit families with very high incomes. According to experts’ calculations, individuals in the high-income bracket could potentially enjoy an exemption of 377 euros per month with the envisaged increases.