Germany’s 2027 tax reform: who will pay more and who will pay less

The GlobalTalent24 team examined what is set to change in Germany’s tax system from 2027, who will pay more, who may receive relief, and how employees and families could be affected.

Germany is preparing one of its more significant income tax adjustments in recent years. Under the Federal Ministry of Finance draft published on 18 August 2026, the new rules are intended to apply from 1 January 2027. Low- and middle-income earners would receive relief, while the burden at the very top would rise.

This is not simply a “tax on the rich”, but a fiscal rebalancing: broad relief financed partly through a larger contribution from the highest incomes. The government had previously estimated total relief at around €10 billion per year.

New top income tax rate: 47%

In 2026, the 45% rate applies from €277,826 of annual taxable income. From 2027, the scale is planned as follows:

• 42% from €70,600 of taxable income;

• 45% from €250,000;

• 47% from €280,000.

For married couples assessed jointly, the corresponding thresholds are doubled.

The 47% rate does not apply to all income

Earning more than €280,000 does not mean paying 47% of the entire income. Germany uses a progressive system, so the higher rate applies only to the relevant portion of taxable income.

The thresholds refer to taxable income (German: zu versteuerndes Einkommen) after relevant deductions, not simply gross annual salary.

Lower taxes for middle incomes and families

The 42% rate would begin only at €70,600 of taxable income, with a gentler progression between €17,800 and €70,600.

The basic tax-free allowance, child allowances, child benefit and the employee lump-sum deduction are also set to rise. The basic allowance of €12,348 in 2026 is expected to reach €12,900 in 2028 in two stages. The employee lump-sum deduction is planned at €1,430.

Child benefit would increase from €259 to €267 per child per month in January 2027, then to €272 in 2028. A four-person family with two children and middle incomes could receive more than €600 in annual relief once the reform takes full effect.

How will the reform be financed?

Funding will not come only from the highest earners. The package also plans to:

• raise the flat tax on low-income marginal jobs from 2% to 5%;

• reduce the tax relief for certain household trades services from 20% to 15%;

• lower the annual maximum relief from €1,200 to €900.

The reform therefore recalibrates the existing system: more room for many employees and families, a larger contribution from the highest incomes, and fewer targeted tax subsidies.

What does the reform mean for people from the Balkans working in Germany?

For most employees from the Balkans, the new 47% rate will have no direct effect. The shifted thresholds, higher basic allowance, larger employee deduction and additional family relief will matter more.

The calculation changes for very high earners, including some highly paid doctors and specialists, executives, managers, partners in professional firms, top experts and entrepreneurs. For them, €280,000 becomes an important new tax line.

The actual effect will depend on gross income, deductions, marital status, number of children, tax class and other individual circumstances.

What happens next?

The rules are planned to start on 1 January 2027, while some measures will reach their full effect in 2028. The draft must still pass through Germany’s legislative process, so individual figures and details may change.

Important financial decisions should be based on the final law, not only on initial announcements.

This article is for information only and does not constitute tax advice. Source: German Federal Ministry of Finance.