Parental allowance changes. Guides to living in Germany. In 2025, several changes are expected that could both help and hurt the finances of people in Germany. On the positive side, 1.8 million pensioners will likely see more money, as the income limit for those with reduced earning capacity is set to increase. Housing benefit recipients will also get more support. However, parents may face financial cuts. Due to a new tax law, parental allowance might be much lower than before.
Tax Bracket Changes: Parents May Receive Significantly Less Parental Benefit
Finance Minister Christian Lindner (FDP) plans to reform spousal tax splitting by eliminating tax classes III and V over the coming years. By 2030, these old tax brackets will be replaced with Class IV using the factor method. In the current system, couples can choose whether to have different tax brackets and which of them falls into Class III or Class V, which can positively impact their joint net income at the end of the month, according to echo24.de.
Parents have also benefited from this tax arrangement during the family-planning phase. However, according to Bild, this may soon change, leaving expectant parents in a worse financial position. The reason is that with the removal of tax classes III and V, spouses will no longer have the option to switch tax classes before the birth of a child. This could significantly reduce parental allowance, which is designed to compensate for income lost when parents take time off to care for their newborn. As a result, parents may end up with much less money in the future.
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Here’s how the potential changes could affect parental allowance based on different income scenarios:
- For couples with a combined income of €21,984 per year, parental allowance would drop from €876 to €815.
- If the mother earned €30,778 and the father €56,424, the parental allowance would decrease from €1,237 to €1,097.
- If the mother previously earned €48,000 and the father €56,424, the parental allowance would fall from the maximum rate of €1,800 to €1,605.
The Impact of Fiscal Reform
In theory, employees should benefit from the tax reform starting in 2025. However, tax experts warn that the new rules could negatively affect parents. Parental allowance is based on the net salary from the last 12 months. Couples have traditionally taken advantage of this by having the lower-earning partner (often the woman) switch to the more favorable tax class III before the birth, while the other partner shifts to the less favorable tax class V. This increases the net income of the lower earner, boosting the parental allowance they can claim later.