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Families in Germany to see next child benefit hike in 2025, says finance minister

Finance Minister Christian Lindner, of the pro-business Free Democrats (FDP), says he expects the next increase for child allowance or Kindergeld to take place next year, as bickering among German coalition parties continues.

Published: 25 April 2024 09:57 CEST
A couple walk through a park in Germany with their young children.
A couple walk through a park in Germany with their young children. Photo: picture alliance/dpa | Felix Kästle

The minister, who was discussing relief for families in Germany in an interview with Redaktions Netzwerk Deutschland (RND), said that Kindergeld will be increased in 2025 but didn’t say how much it would increase. 

“For the exact amount, we will have to wait for the subsistence level report in autumn,” the FDP politician said.

Lindner added that there are also plans to compensate for inflation in wage and income tax in 2025.

“Together with an increase in child benefits, there will also be a further increase in the basic tax-free allowance and the child allowance in wage and income tax in 2025,’ he said. He estimated the volume of relief from these tax cuts to support German residents at a time of high inflation at a “single-digit billion amount”.

However, the interview also revealed further cracks within the coalition government, which has been arguing about several topics recently including unemployment benefits. 

READ ALSO: Why a push for tougher sanctions in Germany is sparking a coalition row

Lindner said his party continues to reject a hike in child benefit called for by coalition partners the SPD and the Greens at the beginning of 2024.

“Child benefit was already increased significantly and disproportionately in 2023 in order to relieve the burden on families,” he said. “That was a great success. That is why the next increase is not due until 2025.”

Lindner also reiterated his call for child tax free exemptions (known as the Kinderfreibetrag) to be increased retroactively to the beginning of 2024, which he says is necessary for constitutional reasons. “Unfortunately, the SPD and the Greens have blocked this so far,” the FDP politician lamented.

There has been a row in the coalition over this matter for some time. 

Lindner wants to increase the tax-free allowance for families with children without increasing child benefit at the same time. However, the SPD considers this to be unfair because it would only relieve the burden on families with high incomes. For families with lower incomes. child benefit is the main factor. The FDP argues that the increase it wants to see is intended to follow on from the hike in child benefit from 2023.

German Finance Minister Christian Lindner.

German Finance Minister Christian Lindner. Photo: picture alliance/dpa | Kay Nietfeld

Parents in Germany automatically receive either child benefit or child tax exemptions depending on their income. The Finanzamt (tax office) looks at each tax return to determine whether the Kinderfreibetrag or Kindergeld makes the most sense for the family in question. 

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The tax-free allowance is often only worthwhile for families bringing in higher incomes. It was increased from €6,024 to €6,384on January 1st and would rise retroactively to €6,612 under the Finance Minister’s plans.

Child benefit or Kindergeld rose to a standardised €250 per month and child in 2023.

As The Local has been reporting, the German government has agreed to replace Kindergeld with Kindergrundsicherung or ‘basic child allowance’ from 2025.

The new system will see those with a greater financial need granted additional benefits. It means all benefits including a basic allowance, a supplemental allowance, and parts of an “education and participation package” will be bundled into the Kindergrundsicherung.

READ ALSO: What families in Germany need to know about Kindergeld’s replacement from 2025

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READER QUESTIONS

EXPLAINED: Do I have to declare income from foreign sources on my German tax return?

If you're a resident in Germany, you will typically have to declare and pay tax on your worldwide income. But there may be some exceptions in certain cases.

Published: 3 May 2024 11:11 CEST
EXPLAINED: Do I have to declare income from foreign sources on my German tax return?

If you’re filling in a German tax return, you are generally legally required to declare and pay tax on all income you earn – wherever in the world you earn it. This is true even if you keep the money abroad.

In most cases, your worldwide income is subject to what’s called “unlimited tax liability” – which means that there’s no exemptions or discounts on your taxes for money earned abroad – whether its from work or capital gains like the sale of stocks. This is generally even true if Germany doesn’t have a Double Taxation Agreement (DTA) with the other country in question.

If, however, Germany does have a DTA – some of your tax might end up getting limited in Germany. This is generally providing that you’ve paid it in the other country.

For example, the US may apply a withholding tax to payments made to you for freelance services you provide in the US, for example. In this case, the DTA between Germany and the US would allow you to submit documentation proving that you’ve already paid tax on this payment in the US. That’ll prevent you from having to pay tax again in Germany on the amount that actually gets wired to your account.

READER QUESTION: How can I find a German tax advisor?

Who has a double taxation treaty with Germany?

Germany has concluded double taxation agreements with numerous – but not all – countries and territories. You can check out the German government’s dropdown menu here to see which countries are on the list.

German residents earning money in other EU countries should still check this list, as certain tax provisions may be unique to the two countries in question.

READ ALSO: Everything you need to know about paying taxes in Germany

What about rental income?

As a general rule, rental income is taxed in the country where the property is located, meaning you don’t have to declare or pay it in Germany. There are some notable exceptions – for example if the property is located in Spain. In this case, you would report this income in Germany.

What about inheritance?

Some double taxation agreements have clauses that specifically govern what tax rules there are around inheritance that a German resident might get from abroad.

In general, the inheritor will still have to pay inheritance tax in Germany, but could see their tax liability reduced if tax already has to be paid abroad.

There are also other exceptions possible, such as if a child receives a property in their parent’s will and then proceeds to live in it for at least 10 years after they acquire it. In this case, they may not need to pay any tax on it.

In certain complicated cases – or if you have any doubt – it may be a good idea to seek out the services of a professional tax advisor who can make sure you don’t get in trouble with the Finanzamt (tax office). 

READ ALSO: Do foreigners owe tax in Germany on money that is inherited from overseas?

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