Germany’s cabinet has approved an income tax reform that shifts the 42% top-rate threshold to €70,600 in taxable annual income while delivering roughly €10 billion in yearly relief for households.
The Income Tax Reform Act 2027 was approved on September 2 and will be introduced in two stages beginning in 2027, with the full package taking effect in 2028. The government is targeting low- and middle-income workers and families after years of rising food, housing and energy costs.
Germany will flatten the second progression zone between €17,800 and €70,600, delaying the point at which taxable income enters the 42% bracket.
The basic tax-free allowance will increase from €12,348 this year to €12,564 in 2027 and €12,900 in 2028. The standard employee deduction will rise from €1,230 to €1,430, allowing roughly 1.3 million taxpayers to avoid filing additional employment-expense documentation when their costs remain below the new threshold.
Child benefit will increase from €259 per month to €267 in 2027 and €272 in 2028. Child tax allowances will rise to €10,056 next year and €10,236 the following year.
A working family with two children and €60,000 in combined taxable income could retain more than €600 extra per year once the reform is fully implemented in 2028.
Higher earners will finance part of the relief package through steeper rates at the top of the income scale.
Germany’s existing 45% wealth-tax rate will begin at €250,000 of taxable annual income, while a new 47% rate will apply above €280,000.
The legislation also reduces some deductions. The tax-deductible share of qualifying household tradesman expenses will fall from 20% to 15%, with the maximum benefit dropping from €1,200 to €900. The flat tax applied to mini-jobs will rise from 2% to 5%.
Germany’s progressive income tax system can also affect digital-asset investors when crypto disposals fall within taxable private-sale rules. Long-term holdings can receive different treatment, while short-term gains may be taxed at the investor’s personal rate, making the country’s crypto tax rules materially different from flat capital-gains regimes.
The cabinet approval advances the proposal into the parliamentary process before the first measures are scheduled to begin in 2027. Full annual relief of roughly €10 billion is targeted from 2028.
The German changes arrive during a broader tightening and restructuring of financial rules across major markets. Thailand separately finalized self-hosted wallet verification requirements this week for transfers involving licensed digital-asset operators, with those rules taking effect in February 2027.
Germany’s tax package is scheduled to begin providing relief in 2027, with the revised allowances, family benefits and rate structure reaching their full planned effect in 2028.
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