Agreement Reached on Modest Tax Cuts Starting in 2027

The law has yet to be passed—but the framework is in place. In early July 2026, the leaders of the CDU/CSU-SPD governing coalition agreed on a “Program for Economic Recovery and Employment.” It consists of a total of 34 points, including numerous tax changes, but no fundamental reform. Many of these changes are to be implemented through the “Draft Income Tax Reform Act of 2027.”
Low-income earners are set to benefit somewhat: For example, the annual tax-free basic allowance is to rise by 216 euros, from the current 12,348 to 12,564 euros. At the other end of the scale, the CDU-SPD coalition also plans to provide some relief: The top tax bracket will apply at a higher threshold—starting at an annual taxable income of 70,600 euros instead of the previous 69,879 euros.
Many people are likely to notice the planned increase in the employee flat-rate allowance (also known as the income-related expenses allowance)—from the current 1,230 euros per year by 200 to 1,430 euros in expenses that can be deducted without providing receipts.
In addition: Sunday and holiday pay supplements are tax-free if they do not exceed certain percentages of the base wage. This base wage per hour of work is currently 50 euros and is set to increase to 75 euros starting next year, which will benefit employees…