Am Thursday was relief day in Berlin. The Bundestag introduced several laws intended to provide financial relief to millions of citizens in times of high inflation. Some things were already planned before the current energy crisis, such as the reform of the housing allowance, while others the traffic light coalition fought to the end, above all to compensate for the cold progression. The most important thing about the resolutions at a glance.
Inflation Compensation Act
Inflation not only eats away at purchasing power, but also devalues the key figures in the tax rate. In order to prevent taxpayers from being gradually burdened more, the Bundestag passed the Inflation Compensation Act. These include a higher basic allowance, a shift in the income tax rate, the adjustment of child allowances and child benefit and more. The taxpayers’ association has calculated for the FAZ what the measures mean for the taxpayer. According to this, for example, a single person with a taxable annual income of 50,000 euros will have 474 euros more available next year than in 2022. The year after next it will even be 910 euros. For a family with one child and twice as much income, it is 976 and 1874 euros. The various deductions made possible by tax law are already taken into account in the taxable income. The corresponding gross income is correspondingly higher – how much higher depends on the individual case.
The tax-free basic allowance will increase next year by EUR 561 to EUR 10,908, and then to EUR 11,604 in 2024. Other benchmarks of the income tax rate will first be shifted by 7.2 and later by 6.3 percent. For example, the value from which the top tax rate of 42 percent takes effect will increase from EUR 58,597 today to EUR 62,810 in 2023 and to EUR 66,761 in 2024. The tax on the wealthy applies as usual from an income of 277,826 euros. Income above this is charged at 45 percent.
The rules on the solidarity surcharge will also be adapted to inflation, so that 90 percent of taxpayers remain unaffected by the supplementary tax. The surcharge of 5.5 percent refers to the tax liability, the situation is similar with the solidarity tax exemption limits. Anyone who pays less than 16,956 euros in taxes on their income in 2023 and less than 18,130 euros in 2024 will be spared the surcharge – once introduced to finance reunification. Double the amounts apply to married couples.
According to the Federal Ministry of Finance, this means that in future single people with a taxable annual income of up to 66,915 euros will not have to pay a solidarity surcharge, so far the limit has been 62,604 euros. The exemption limit is followed by a sliding zone in which the additional burden on the total tax burden is gradually brought up to the full rate. Currently, this sliding zone extends to an income of 97,296 euros, in the future it will end at 104,009 euros.
The fact that the solo sliding zone is adjusted to the devaluation is new. In contrast, there have been more frequent shifts in the classic benchmark tariff values. The taxpayers’ association praised the relief. “With the current record inflation, it would have been a farce if the reduction of the cold progression had been slowed down right now,” said President Reiner Holznagel. Actually, you need a “tariff on wheels” for income tax. This would allow automatic tariff adjustments to inflation. “That is exactly what has just been sealed by parliament in Austria. In Switzerland, the tariff on wheels even has constitutional status,” says Holznagel.