Germany’s 2027 income tax reform: what international residents should know

Germany’s government has approved a draft income tax reform for 2027 that would give most low- and middle-income households more tax relief, increase child benefit and the employee lump-sum allowance, while asking the highest earners to pay more. The important point for international residents is that this is not yet final law. The cabinet approved the bill on 2 September 2026, but it still has to complete the parliamentary process before the changes can take effect.

For expat families, international professionals, entrepreneurs and other people planning a move to Germany, the proposed figures are already useful for 2027 budgeting. They should not, however, be treated as guaranteed until the legislation is enacted.

Germany’s proposed 2027 tax changes at a glance

Important: the high-income thresholds refer to taxable income, not simply gross salary. Individual deductions, marital status and other factors can change the amount on which German income tax is calculated.

What would change for most employees?

The government plans to raise the basic tax-free allowance from €12,348 in 2026 to €12,564 in 2027 and €12,900 in 2028. It also proposes flattening part of the progressive tax scale up to around €70,600 of taxable income.

For employees, the standard employee expense allowance would rise from €1,230 to €1,430. The Finance Ministry says this should also simplify tax filing for around 1.3 million taxpayers whose deductible employment expenses remain below the new lump-sum amount.

According to the Federal Government, the package represents around €10 billion a year in tax relief when fully implemented. Its own example suggests a two-income family with two children and about €60,000 of taxable household income could be more than €600 a year better off by 2028 compared with current rules.

What would change for families with children?

The bill would increase monthly child benefit from €259 per child in 2026 to €267 in 2027 and €272 in 2028. Child tax allowances would also rise, to €10,056 in 2027 and €10,236 in 2028.

For internationally mobile families, these figures are useful when comparing the cost of living and household finances between Germany and another country. Eligibility for German family benefits depends on the household’s circumstances, residence and social-security position, so families moving across borders should check their own entitlement rather than assuming the headline payment automatically applies.

If you are still planning your move, see Babylon’s Moving to Germany guide and Germany work permits guide.

High earners could pay more

The most significant change for higher-income professionals and entrepreneurs is at the top of the tax scale. Under the cabinet bill, the 45% rate would begin at €250,000 of taxable income instead of €277,826 under the 2026 schedule. A new 47% marginal rate would apply above €280,000.

This does not mean someone earning €280,001 pays 47% on their entire income. Germany uses a progressive system, so the higher rate applies only to the relevant portion of taxable income above the threshold.

International executives, founders and other high earners considering Germany should therefore compare the proposed rules with their expected taxable income, not just the salary figure in an employment contract. Cross-border income, double-taxation treaties and residency status can materially affect the final position.

Other changes in the bill

The reform also includes several changes that may matter to households and employers:

• The maximum hourly base wage used for tax-free Sunday and public-holiday supplements would rise from €50 to €75.
• The tax deduction for qualifying household tradesperson costs would be reduced from 20% to 15%, with the maximum benefit falling from €1,200 to €900.
• The flat tax rate for mini-jobs would rise from 2% to 5%.

For property owners, the reduction in the tradesperson deduction is worth noticing because it partly offsets the broader tax-relief message. Anyone budgeting renovations or maintenance should wait for the final law before relying on the new limit.

Is Germany’s 2027 income tax reform already law?

No. As of 20 September 2026, the Federal Cabinet has approved the government bill, but the legislation has not completed the Bundestag and Bundesrat process and has not been promulgated. The proposed start date is 1 January 2027, with the full second-stage relief intended for 2028.

That legislative status is particularly important for relocation planning. The figures are credible government proposals, but they can still be amended before enactment.

What should international residents do now?

1. Use the proposed figures for planning, not as guaranteed entitlements. They are a reasonable guide for 2027 budgeting but are still subject to legislation.
2. Check taxable income rather than gross salary if the proposed 45% or 47% rates could affect you.
3. Review family-benefit eligibility separately if your household has cross-border residence, work or social-security links.
4. Recheck the final law before making tax-sensitive decisions around property works, compensation packages or business structures.

For immigration and residence planning alongside tax questions, Babylon’s Germany visa and residency guide explains the main routes for international residents.

Official sources

• Federal Ministry of Finance: draft Income Tax Reform Act 2027
• Federal Ministry of Finance: cabinet approval and key figures
• Federal Government: income tax reform overview
• Federal Ministry of Finance: current 2026 income tax schedule

Last verified: 20 September 2026. This article will need updating when the bill completes the legislative process or if the proposed figures change.