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Important changes to tax law introduced in Germany, here’s how they’ll affect all workers in Germany

Work in Germany. Changes in tax law in Germany. The tax system is to be adjusted to inflation. Here’s what changes:

Changes in tax law in Germany

The federal cabinet has approved important changes to German tax law that now have to be adopted by parliament. The most important reason for the changes is the adjustment of the regulations to the currently very high inflation. Thanks to the amendments to the act, additional burdens on citizens are to be alleviated, inter alia, by by a fairer rate of income tax.

Higher basic tax-free amount

It is to be raised, among other things, basic tax-free amount , i.e. income up to which you do not pay tax in Germany . The federal government wants to raise this limit from the current EUR 10,347 to EUR 10,632 in 2023 and to EUR 10,932 the following year . The highest tax rate of 42 percent is also set to be shifted up and will only apply next year on an income of EUR 61,971 , and in 2024 on an income of EUR 63,514 .

VAT tax reduction on gas

The VAT tax on gas will be reduced for a specified period – from the beginning of October 2022 to the end of March 2024. During this period, a reduced rate of 7% will apply. and not 19 percent as before. The companies are expected to pass the cut in full to consumers. This measure is intended to cushion the burdens of consumers with the introduction of the gas tax, which is planned from October. It aims to ease the pressure of troubled suppliers by passing on to consumers almost all of the additional costs of rising gas import prices.

Using the potential of solar systems 

In addition, the government is to encourage the installation of solar systems on the roofs of private homes. It is worth recalling that citizens often avoid installing photovoltaic systems due to enormous bureaucratic obstacles.

According to the announcement, VAT is to be abolished for the delivery and assembly of the above- mentioned systems. In addition, the income from operating the systems is to be exempt from income tax to a certain level.

Kindergeld and pension insurance

As part of the planned changes, the Kindergeld child benefit and the Kinderzuschlag allowance are also to be increased from 2023.

Retirement expenses should also be deducted in full as special expenses.

Work from home allowance

Homeworkers should expect a higher home work allowance. Instead of EUR 600, it is to amount to a maximum of EUR 1,000 a year. The lump sum should also not be valid for a specific period of time, but permanently. It compensates for the additional costs incurred by those forced to move to home offices.

Currently the ‘ home office allowance ‘ is € 5 per day and can be collected for a maximum of 120 days. In the future, this period will be extended to 200 days. We wrote about it here: Workers in Germany to receive 400 euros more, find out if you are entitled to the pay out.