The German Federal Council (Bundesrat) approved the updated version of the bill aimed at further developing tax law and adjusting the income tax brackets on 20 December 2024. It will enter into force after publication in the Official Gazette.

The bill reportedly includes changes to:

• The basic tax-free allowance outlined in Section 32a (1) of the Income Tax Act which will rise from EUR 312 to EUR 12,096 for the 2025 assessment period (and to EUR 12,348 for 2026). Additionally, adjustments will be made to the other basic income bracket rates, excluding the so-called wealth tax rate.

• For the 2025 assessment period, the tax-free allowance for children will increase by EUR 30, reaching a total of EUR 3,336 (or EUR 60 for joint assessments, totaling EUR 6,672). In 2026, this allowance will further increase by EUR 78, bringing the total to EUR 3,414 (or EUR 156 for joint assessments, totaling EUR 6,828).
• The child benefit (family benefit) as stipulated in Section 66 of the Income Tax Act will be raised from EUR 250 to EUR 255 for the year 2025, with a subsequent increase to EUR 259 in 2026.
• The exemption threshold for the solidarity surcharge will be elevated for the assessment periods of 2025 and 2026.

Earlier, Germany’s Lower House of Parliament of Germany (Bundestag) passed the Annual Tax Act 2024 on 18 October 2024; which introduces several legal developments and changes that hold practical importance, particularly in areas such as, minimum tax Act, trade tax, VAT, Controlled foreign company (CFC) taxation, income tax, real estate tax, Tax haven defence Act, Investment Tax Act as well as transformation tax law and tax procedural law.