Germany's 2027 Tax Overhaul: Higher Levies for Top Earners and Minijobbers Fund Billions in Middle-Class Relief
Published on 07/29/2026 at 06:43 | Redaktion boerse-global.de
A sweeping 34-point economic package set to take effect in 2027 will reshape Germany's tax landscape, delivering roughly €10 billion in annual income-tax cuts for millions of workers while simultaneously raising rates on high earners, low-wage minijobbers, and cryptocurrency investors. The plan, negotiated between coalition partners, also phases out the long-criticized Riester pension system and introduces tougher anti-fraud measures.
Who gains, who pays
The cornerstone of the reform is a two-stage increase in the basic tax-free allowance, rising from the current €12,348 to €12,900 by 2028. The standard employee deduction will climb by €200 to €1,430 over the same period. Families will see child benefit increase in two steps from €259 to €272 per child.
But the coalition remains divided on how to finance the relief. The Social Democrats (SPD) want to raise taxes on incomes above €100,000 and on inheritances. The Christian Democratic Union (CDU) rejects what it calls pure redistribution and instead demands spending cuts.
Top earners and minijobbers face higher rates
The top income-tax rate of 45 percent will now kick in at €250,000, down from the previous threshold of €277,826. Those earning more than €280,000 will pay 47 percent.
Minijobbers—roughly 6.8 million people in marginal employment—will also feel the pinch. Starting in 2027, the flat-rate tax on these jobs jumps from 2 percent to 5 percent. More controversially, they will be automatically enrolled in the state pension system unless they actively opt out. The hospitality industry and employer associations have sharply criticized the change.
There is one bright spot for shift workers: tax-free allowances for Sunday and public holiday bonuses will rise from €50 to €75 per hour from January 2027.
Riester pension scrapped, new model introduced
The government is overhauling private retirement savings. From 2027, the Riester pension will be replaced by the Altersvorsorgedepot (AVD), a state-subsidized investment account. Existing Riester contracts remain valid, but no new ones can be signed.
The AVD offers a maximum annual basic subsidy of €540. The state matches 50 percent of the first €360 in personal contributions, with an additional €300 per child. Costs are capped at 1.0 percent effective annual fees.
From 2028, the government plans to introduce a funded supplementary pension modeled on Sweden's system, with contributions gradually rising to 2 percent of salary by 2031.
Crackdown on tax evasion
Alongside the relief measures, the government is tightening rules against tax fraud. A separate 26-point plan abolishes the possibility of penalty-free self-disclosure—offenders can now only receive reduced penalties.
The maximum sentence for organized tax crime rises from 10 to 15 years. From 2028, businesses with annual turnover exceeding €100,000 must use certified cash registers. And profits from cryptocurrency trading will be taxed regardless of how long the assets are held.
The tax authorities expect additional revenue of roughly €1 billion in 2027 alone from these anti-fraud measures.
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