The new tax cuts may not offset the inflation, but they will at least provide some relief to millions of workers. How will wages change in Germany, and what did the calculation show? Acvian provides an overview of who gets how much.
Why and how wages in Germany will change
The financial burden continues to grow, especially for people with low but also average incomes. A small change in taxation means a plus in the bank accounts of millions of workers as early as July. The tax-free base allowance and the allowance for employees will increase, and now workers will receive a slightly higher net salary.
The basic social benefit will increase from 9,984 euros to 10,347 euros. Those who earn less than this amount per year do not have to pay any taxes at all. For everyone else, income up to this limit remains tax-free. If the base tax-free amount is increased according to the plan, the tax authorities will deduct less income tax from the gross salary, and the net pay will be higher.
In addition, the employee benefit will increase from 1,000 euros to 1,200 euros, which taxpayers can offset as expenses related to income on their tax returns. Both changes come into effect on July 1, retroactively from January 1.
What have the payroll experts showed
The tax experts calculated for the Berliner Zeitung the exact amount of benefits in detail.
An employee without children (subject to church tax) in tax class I with a gross salary of 3,500 euros per month will have to pay less tax, approximately 12 euros per month.
Since the tax change is applied retroactively, employers must correct the excess payroll tax withheld in the first half of the year if it makes economic sense for them. Therefore, in July, an employee can count on plus 84 euros.
“If the employer does not change the tax deduction on wages, then increased allowances can be claimed when calculating income tax,” the expert explains. To do this, you must submit an income tax return.
One-time bonus per child of 100 euro
Second example: For a single parent with one child in tax class II with a gross monthly salary of 3,500 euro (not subject to church tax), the benefit, calculated in July, is about 11 euro per month. Adding the repayment, the tax credit in July is 77 euros. Also, a one-time bonus per child of 100 euros was introduced in July.
Not only single parents can take advantage of the bonus. One hundred euros are paid for each child. A family with two working parents and three minor children with a monthly gross income of 4,500 euros (tax class III, not subject to church tax) and 2,500 euros (tax class V, subject to church tax) receives a total of about 22 euros of tax benefits per month. That is 154 euros plus 300 euros of a children’s bonus for the months from January to July.
Wages in Germany will change: freelancers and retirees
To alleviate the situation for taxpayers, the government will have to make further improvements,” the expert says. Right now, only workers will enjoy the increased base tax credit. While freelancers and retirees will also benefit as they don’t pay income tax, the relief will only become noticeable with a 2022 tax return.