Tax Changes 2025 in Germany

INDEX

• General Tax Changes for Everybody

• Employees

• Families and Children

• Health and Care

• Retirement Benefits and Old-Age Provisions

• Small Business Owners (Kleinunternehmerregelung)

• Minimum Wage, Minijob and Midijob

• Photovoltaics

• Other Changes

General Tax Changes for Everybody

The basic tax-free allowance (Grundfreibetrag) will increase by 312 euros from 11,784 euros (2024) to 12,096 euros per person. This means that married couples with a joint assessment (Zusammenveranlagung) can now claim a basic tax-free allowance of 24,192 euros. Only your income above the basic allowance is taxable.

The maximum amount for tax-deductible maintenance payments is linked to the basic tax-free allowance. Therefore the maximum amount also increased to 12,096 euros. You can additionally deduct contributions to basic health and long-term care insurance (Kranken- und Pflegeversicherung). You can claim maintenance payments as extraordinary expenses (außergewöhnliche Belastungen) if the person you support is entitled to maintenance and is not wealthy.

Tax tip: From 2025, stricter controls will apply to maintenance payments (Unterhalt) that you deduct as extraordinary expenses (außergewöhnliche Belastungen). They will only be recognized for tax purposes if they are made by bank transfer. Cash payments will no longer be recognized.

In order to mitigate the so-called “cold progression” (kalte Progression), the benchmark values of the income tax rate (Einkommensteuertarif) will be shifted 2.6% to the right. The top tax rate (Spitzensteuersatz) of 42% will therefore only apply from a taxable income of 68,481 euros (previously: 66,761 euros) in 2025. The threshold for the maximum tax rate of 45% will remain at 277,826 euros.

The exemption limit (Freigrenze) for the solidarity surcharge (Solidaritätszuschlag) will be raised from 18,130 euros to 19,450 euros. For married couples with joint assessment (Zusammenveranlagung), the exemption limit is doubled.

Employees

The application for reduction of wage tax (Lohnsteuerermäßigung) for the following year can now be submitted until November 1st - previously the deadline was October 1st. This gives you more time to plan your tax relief.

Families and Children

The Child Allowance (Kinderfreibetrag) will be increased by 60 euros and now amounts to 9,600 euros per child, including the BEA (allowance for care, education and training needs).

Child benefit (Kindergeld) will increase by 5 euros to 255 euros per month per child as of January 2025.

The maximum amount of child supplement (Kinderzuschlag, short: KiZ) will also increase by 5 euros per month and will now be 297 euros per child from January 1st, 2025. This also includes the immediate supplement (Sofortzuschlag) of now 25 euros per month and child (previously 20 euros). Low-income families can apply for the child supplement in addition to child benefit. Anyone who receives the KiZ also automatically receives the immediate supplement.

From 2025, you will be able to deduct 80 percent of childcare costs (Kinderbetreuungskosten) as special expenses (Sonderausgaben; previously: 67 percent). The maximum deductible amount has also been increased from 4,000 euros to 4,800 euros per year.

Health and Care

The supplementary contribution (Zusatzbeitrag) to statutory health insurance (gesetzliche Krankenversicherung) will increase from an average of 1.7% to an average of 2.5% from January 2025. Each health insurance fund levies the additional contribution individually, in addition to the general contribution rate of 14.6%.

The contribution rate for social long-term care insurance (Pflegeversicherung) will increase by 0.2%. For those without children, it will rise to 4.2%, while for families it will be between 2.6% and 3.6%, depending on the number of children.

Long-term care insurance (Pflegeversicherung) is increasing its care benefits (Pflegeleistungen) by 4.5%. This applies to home care (häusliche Pflege) as well as partial and full inpatient care (teil- und vollstationäre Pflege). The nursing care benefits (Pflegegeld) and Nursing Care Services (Pflegesachleistungen) had already increased by 5% each as part of the 2024 tax changes. This step will increase them by a further 4.5%.

The electronic patient file (ePA) has been tested in selected regions since mid-January, but software problems and security gaps are delaying its nationwide launch. Health insurance companies automatically create an electronic patient file for each insured person, in which health data (findings, doctor’s letters, medication plans, laboratory results, etc.) are stored centrally. It is intended to facilitate communication between doctors, health authorities and patients. Use of the ePA is voluntary.

Bonus payments (Bonuszahlungen) from health insurance funds (Krankenkassen) for health-conscious behavior remain permanently tax-free up to 150 euros per year. Up to this amount, it does not matter whether the bonus is a reimbursement of contributions (Beitragserstattung) or not. If you receive bonus payments in excess of the 150 euro allowance, the tax office will deduct the excess amount from your deductible health insurance contributions.

Tax tip: However, if you receive the bonus for measures that are not covered by the regular insurance cover (e.g. osteopathy, professional dental cleaning, etc.) and for which you have made advance payments, the bonus does not count as a reimbursement of contributions. In this case, it also remains tax-free beyond the 150 euros.

Retirement Benefits and Old-Age Provisions

To avoid double taxation (Doppelbesteuerung) of retirement benefits (Rente), the taxable portion of pensions only increase in 0.5% increments per year since 2023 (previously: 1% increments). This means that in 2025, the proportion of taxable pension will be 83.5%.

Anyone drawing a reduced earning capacity pension (Erwerbsminderungsrente) will be able to earn more in 2025. The supplementary income limits (Hinzuverdienstgrenzen) will rise to around 19,661 euros (full disability pension) or 39,322 euros (partial disability pension).

Since 2023, your pension contributions (Altersvorsorgebeiträge) are be 100% deductible as special expenses (Sonderausgaben). The tax-deductible maximum amount (Höchstbetrag) will rise to 29,344 euros per person in 2025 (for joint assessment: 58,688 euros).

Retirements benefits increase (Rentenerhöhung): as of July 2025, pensions will increase nationwide by 3.74%.

Small Business Owners (Kleinunternehmerregelung)

Since the 2024 tax year, small business owners (Kleinunternehmer) no longer have to submit a VAT return (Umsatzsteuererklärung). Nevertheless, they were still subject to VAT until now. Only the collection of VAT was waived. From January 1st, 2025, the sales of small business owners are now exempt from VAT.

Until now, the small business regulation (Kleinunternehmerregelung) only applied to domestic companies. Now, EU Directive 2020/285 is being implemented, which makes it possible to use the small business regulation across borders. German small business owners can then make use of the small business regulation throughout the EU - provided they meet the applicable national requirements. Conversely, small business owners from other member states can use the German small business regulation.

In addition, the turnover limits (Umsatzgrenzen) for the application of the small business regulation in accordance with Section 19 UStG will be increased. From January 2025, the turnover limit for the previous year will increase from 22,000 euros to 25,000 euros and from 50,000 euros to 100,000 euros for turnover in the current year.

These points are new:

• The turnover limit (Umsatzgrenze) refers to the total net turnover (Netto-Umsatz), i.e. without adding VAT (Umsatzsteuer).
• As soon as the total turnover in the current year exceeds 100,000 euros, the changeover to standard taxation (Regelbesteuerung) takes place during the year - from the time of exceeding the limit. This means that it is no longer the estimated annual turnover that plays a role, but the actual turnover.

In addition, small business owners do not have to issue e-invoices, which will be mandatory from January 1st, 2025. However, they must be able to receive and process electronic invoices. In their own invoices, they must continue to refer to the VAT exemption in accordance with Section 19 UStG.

Minimum Wage, Minijob and Midijob

As of January 1st, 2025, the statutory minimum wage (gesetzlicher Mindestlohn) will increase from 12.41 euros to 12.82 euros per hour. You can calculate your hourly wage (Stundenlohn) or monthly salary (Monatslohn) using the minimum wage calculator from the Federal Ministry of Labor and Social Affairs (Bundesministerium für Arbeit und Soziales).

Due to the increase in the minimum wage, the monthly earnings threshold for minijobs has risen from 538 euros to 556 euros. The annual limit is now 6,672 euros.

Note for students: income up to the annual earnings limit of 6,672 euros does not affect your BAföG entitlement. Family health insurance (Familienversicherung) is also possible for students up to this income limit.

The income range for midijobs remains unchanged at 556.01 euros to 2,000 euros.

Photovoltaics

Income from the operation of photovoltaic systems on single-family homes or commercial properties has been tax-free since 2022, up to a total output of 30 kW. In the case of apartment buildings and mixed-use buildings, the tax exemption previously applied to a total output of up to 15 kW per residential or commercial unit. This will now be standardized at 30 kW (peak) regardless of the type of building. In the case of multiple systems, income up to a maximum total output of 100 kW remains tax-free.

The tax exemption applies up to the aforementioned tax exemption limit (Freigrenze), i.e. it is not an allowance. This means that if the limit is exceeded, the entire sum becomes taxable.

Other Changes

The price of the popular Deutschlandticket will rise from 49 euros to 58 euros per month.

Housing benefits (Wohngeld) increases by 15% or 30 euros per month. 2 million households will benefit from the increase.

The maximum period of entitlement to short-term work benefits (Kurzarbeitergeld) will be extended from 12 to 24 months. This regulation applies for a limited period from January 1st to December 31st, 2025.