Tax relief for families was agreed in the new coalition agreement of the current federal government. The so-called tax compensation for family benefits mainly consists of Changes in Child benefit and child allowances. In addition, there will be a shift in the basic allowance and thus in terms of the cold progression.
With the approved government draft of June 27, 2018, the “Law to Strengthen and Tax Relief for Families and to Adjust Further Tax Regulations”, the way is now clear for the implementation of the agreement.
Increase in child benefit and child allowance
Child benefit is increased to relieve families. From July 1st, 2019 it will increase for a child by EUR 10 each. For the first two children, 204.- EUR per child are paid. For the third child the amount increases to 210.- EUR, for all others to 235.- EUR.
The child allowance is increased to EUR 2,490 per parent. From EUR 2,394.- so far.
Whether child benefit or child allowance is cheaper for you depends on the amount of income and Income from employment, the tax class. For other types of income for which no tax classes are used, whether it is a joint assessment (for married couples) or an individual assessment.
Basically, only either child benefit or child allowance can be claimed. Either the child benefit is paid out or the child allowance is used to reduce your own income tax burden. For this purpose, the so-called cheaper check should be carried out.
Regardless of this, there are families and single parents who buy a property they own from September 2018 – retrospectively until 01.01.2018 – the so-called Baukindergeld. It is a direct grant.
Postponement of the basic allowance
In addition, the increase in the basic allowance and the shift in the progression levels are intended to compensate for the so-called “cold progression”.
The basic tax-free allowance increases from EUR 9,000 from January 1, 2019 to EUR 9,168. From January 1, 2020 it should be raised again to EUR 9,408.
The basic allowance is the annual amount that can be earned without being taxed on income tax. Due to the progressive tax system in Germany, only the euro following the basic allowance – and all other subsequent euros in the calendar year – are taxed.
Increasing the progression levels
In addition to the shift and increase in the basic allowance, the following stages of the progression are also shifted, i.e. increased. Which leads to a reduction of the income tax burden with the same income.
The first Progression level has so far been between EUR 9,001 and EUR 13,996. In 2019 it will increase to between EUR 9,169 and EUR 14,254. With an exemplary income of EUR 14,254 in 2019, an income tax must be paid that was previously due with an income of EUR 13,996 per year. Ergo: The tax burden decreases because the tax rate for EUR 13,996.- now arises with an increased income of EUR 14,254.-. So inflation should also be taken into account.
The highest progression level is increased accordingly. The marginal tax rate of 42% will start at EUR 55,961 in 2019 and EUR 57,052 in 2020. So far it is 54,950 EUR. The “wealth tax” increases accordingly. 45% will be due in 2019 from a taxable income of EUR 265,327, from 2020 EUR 270,501. The current limit is 260,533 EUR.
According to federal calculations, the implementation of the law will lead to a drop in income tax of EUR 9.7 billion.
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Increase in child benefit and compensation for family benefits
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