Taxes and benefits changes

With Germany’s federal government now in its second year in office, 2023 will see the rollout of many campaign promises all three parties made on taxes and benefits—as well as additional measures to help mitigate rocketing inflation.

Some are designed to transfer more money to the recipients through various benefits, while others allow you to keep more of your earnings in the first place.

Basic tax-free allowance to increase

The Grundfreibetrag – or “basic allowance” – refers to how much money you can make in a year before being subject to tax. With steady increases over the last few years, the first €10,347 a person made in Germany in 2022 was subject to no tax at all, with the money made on top of that being taxable. In 2023, that number will increase by €561 to €10,908.

Higher income threshold before entering top tax rates

Currently, earning €58,597 annually puts you into the high income tax bracket. Any earnings over this threshold are subject to the top tax rate of 42 percent. Starting next year, the threshold of what someone in Germany has to earn before paying a 42 percent rate increases by more than €3,000 to €61,972 annually. This measure is designed to help avoid what’s known as ‘cold progression’, where pay rises are eaten up by inflation but people are still taxed on their extra earnings. However, this won’t affect the special tax rate for the very wealthy. That threshold starts at €277,836 annually and will remain the same.

Home Office tax credit to go up

Currently, you can claim up to €600 a year in tax credits for working at home, with €5 allocated per day you work at home up to the maximum. This is meant to offset certain costs, such as heating, that can go up because you’re at home more. In 2023, this amount will increase to €6 a day up to 210 days, meaning people can write off up to €1,260 a year, according to Germany’s Finance Ministry.

Automatic expense deductions to go up

The lump sum for income-related expenses – known in German as the Arbeitnehmer-Pauschale – will be increased to €1,230 as of January 1st. This is the amount of expenses that tax offices automatically deduct from employees’ earnings when they fill in a tax return, meaning receipts aren’t required for things like office supplies and travel costs up to this amount. January will mark the second time this lump sum has been raised in the past year: it was raised retrospectively from €1,000 to €1,200 for 2022 as part of the first relief package.

Pension contributions to become tax-deductible, but health insurance contributions to rise

Starting in 2023, money you pay into your pension will be completely tax deductible, reducing your overall tax burden.

But it’s not all good news. Many of Germany’s public health insurance funds – put under strain due to the pandemic’s costs – are upping their so-called additional health insurance contributions (or ‘premiums’) from next year. Previously, statutory health insurers were only allowed to charge an additional 1.3 percent on top of the basic contribution of 14.6 percent of income. From next year, that figure will increase to 1.6 percent – and it seems that many insurers are keen to take advantage of the new freedom to hike their fees.

READ ALSO:

• What to know about Germany’s new health insurance fees for 2023
• German health insurance costs set to rise next year

“Midi” Jobbers to get some tax relief

In Germany, jobs where someone earns between €525 and €1600 per month are called “midi-jobs.” In midi-jobs, the worker doesn’t make quite enough to be subject to full tax obligations – or social insurance protections – under German labour law. Instead, midi-jobbers make health and social insurance contributions on a sliding scale, meaning they pay less tax. As of January 1st, the midi-job limit will increase from €1,600 to €2,000 per month, allowing more people to save on contributions.

READ ALSO: The rules in Germany around ‘mini’ and ‘midi-jobs’

Dual citizenship to finally be allowed for non-EU nationals naturalising as German

In a long-awaited decision, Germany’s Interior Ministry is set to present its draft citizenship reform law to the Bundestag for debate in either January or February.

The law, once approved, will allow non-EU nationals naturalising as German to keep their other passport by default. Right now, they normally have to give it up.

The law will also shorten the time it takes that someone needs to have been resident in Germany from eight years to five – and in some cases – even three years. 

Parliamentarians expect the law to pass by summer 2023.

READ ALSO: INTERVIEW: Germany on track to pass dual citizenship despite opposition

Bürgergeld (or ‘Citizen’s Allowance’) comes into force

In political win for Chancellor Olaf Scholz’s ruling Social Democrats, the new Bürgergeld benefits replace the old Hartz IV long-term unemployment insurance schemes. People receiving it will get an allowance for further training, aimed at allowing them to pursue higher-paying and more sustainable work. Benefits are also going up by more than €50 to €500 per month, while up to €40,000 in assets from benefit claimants will be protected for a year under the scheme.

READ ALSO: Germany reaches agreement on Bürgergeld – with a couple of catches

Tax-free bonuses to employees

Starting in 2023, employers will be able to pay their employees up to €3,000 in tax-free bonuses in the coming years to cushion high inflation. No income tax will be payable on such bonuses until the end of 2024. However, it remains to be seen how many employers will make use of the option and actually pay out the optional extra income.

Housing allowance to go up

Housing allowance – or Wohngeld – is available to low-income households in Germany, particularly pensioners with low monthly stipends or people working minimum wage jobs. It’s designed to help these households pay rent or utility costs.

Some may also be eligible for extra heating subsidies over this winter. At the moment, it can be complicated to determine is someone is eligible, but the government wants to expand the scope of the support to include an estimated two million people – up from the current 600,000. They also want to adjust the amount people receive to the new realities of the energy market.

The average household on Wohngeld currently receives a supplementary €177 per month. The government plans to substantially increase this to €370 per month starting on January 1st.

READ ALSO: Wohngeld: How many people in Germany can get help with rising living costs

Child allowances to be extended

Germany’s child benefits, which see parents receive money for each child they have to help pay the costs of supporting them, are getting an overhaul. Families currently receive €219 per child for the first two children, €225 for the third one and €250 for any more than that. As of January 1st, families will get €237 for the first three children, with €250 per additional child going to anyone with a larger family. 

READ ALSO: What benefits are you entitled to if you have children in Germany?

New laws and regulations

From better protection of employees to trying to minimise plastic waste, there are also several new pieces of legislation coming into effect on January 1st.

Electronic sick note

Starting on January 1st, employers will be required to accept electronic sick notes. Employees who fall ill, and who have statutory insurance, will then no longer have to submit a paper certificate of incapacity for work (Arbeitsunfähigkeitsbescheinigung) to their employer, but will receive a printout for their records.

Last nuclear power plants to be taken off the grid

In mid-April, the last German nuclear power plants will be taken off the grid. The Isar 2, Neckarwestheim 2 and Emsland power plants should have been shut down at the turn of the year as part of the nuclear phase-out, but their operating lives were extended to help Germany cope with the energy crisis.

In order to “continue to ensure the health policy steering effect,” the Federal Ministry of Finance is gradually increasing the tax on tobacco. Between 2022 and 2026, the price of a pack of cigarettes (20 pieces) will rise by an average of eight cents per year. The pack of fine-cut tobacco (Feinschnitt) and the minimum tax for cigars/cigarillos and pipe tobacco will also be adjusted.

No more compulsory vaccination for nursing staff

The compulsory vaccination for employees in hospitals and nursing homes, which has been in effect since March, is set to be abolished on January 1st. The reason is that the currently dominant Covid variants are better able to evade the immune response of people who have been vaccinated or have recovered than previous ones.

More and more experts consider the Covid pandemic to now be endemic – including top virologist Christian Drosten.

READ ALSO: Calls to end Covid measures as top virologist deems pandemic ‘over’

Changes for cars and trucks

Buyers of plug-in hybrid vehicles will no longer receive federal subsidies from 2023. In addition, the premiums for purely electric vehicles will decrease. As of September 1st, subsidies will be limited to private individuals. 

The lorry toll on Germany’s trunk roads will also be raised in 2023, in order to take greater account of the costs of noise pollution and air pollution.

CO2 tax on heating to be split 

From January, landlords will in many cases have to contribute to their tenants’ climate levy for heating. The so-called CO2 tax is divided between tenant and landlord according to a graduated model. The less climate-friendly the house, the more the landlord must pay. Until now, tenants have had to shoulder the entire cost of the levy, which is supposed to help reduce climate-damaging carbon dioxide emissions.

New mandatory reusable packaging

Another overarching change is the mandatory re-usability for delivery services, catering services and restaurants. From January 1st, delivery and catering services, as well as restaurants and cafes (including those situated in supermarkets), will be required to offer reusable containers in addition to single-use packaging for takeaway food and drink.

Small businesses with a maximum of five employees and a sales area of up to 80 square meters are exempt from this rule. However, they should point out to their customers that the food they have ordered can also be filled using their own containers.

Better tracing of supply chains

International supply chains are increasingly in the focus of human rights activists. Under the new Supply Chain Act, companies will be obliged to pay more attention to where their goods actually come from and the working conditions of the people who produce them. The act applies to companies with more than 3,000 employees, and obliges companies to react to human rights abuses carried out by their suppliers. 

Aid organisations and trade unions will be given the opportunity to represent those affected by violations before German courts.