Tax Allowances for 2024
In October 2024, the Bundestag (Federal Parliament) approved tax relief measures retroactive to 1 January 2024. The basic tax-free allowance (Grundfreibetrag) and the child allowance (Kinderfreibetrag) were increased to reduce the tax burden and cushion the effects of inflation. These adjustments are based on the Existenzminimumbericht (Subsistence Level Report), which is regularly reviewed and updated. But how significant is this relief in reality?
"Basic tax-free allowance increases by 180 euros to 11,784 euros per person"
What is the basic tax-free allowance and how is it determined?
The basic tax-free allowance (Grundfreibetrag) is the amount deducted from income before tax is calculated. It is intended to ensure that the subsistence level (Existenzminimum) is not taxed. The Federal Constitutional Court (Bundesverfassungsgericht) has ruled that this income must remain tax-free. The allowance is periodically redefined based on the subsistence level report issued by the federal government.
In 2024, the basic tax-free allowance will rise by 180 euros to 11,784 euros per person. This reduces the taxable income (zu versteuerndes Einkommen), which in turn lowers the tax liability.
What does this increase mean in concrete terms?
An increase in the basic allowance by 180 euros does not mean that every taxpayer automatically pays 180 euros less in tax. The actual tax saving depends on the individual tax rate applied to the taxable income.
An example using the average income in Germany (Statista) https://de.statista.com/themen/293/durchschnittseinkommen/:
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- Full-time employees earn on average approximately 4,480 euros gross per month (i.e. 53,760 euros per year).
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- All employees (including part-time) earn an average of 3,540 euros gross per month (i.e. 42,480 euros per year).
The increase in the allowance means that 180 euros of income no longer needs to be taxed. The tax saving therefore depends on the tax rate:
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Employees with an assumed tax rate of 19.4% (full-time employees) save:
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- 180 euros × 19.4% = 34.90 euros
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Employees with an assumed tax rate of 15.1% (all employees) save:
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- 180 euros × 15.1% = 27.23 euros
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The actual tax saving resulting from the increase in the basic allowance is therefore, on average, between 27 and 35 euros. For your individual calculation, please see also the Tax and Contribution Calculator (Bundesfinanzministerium): https://www.bundesfinanzministerium.de/Web/DE/Service/Apps_Rechner/Abgabenrechner/abgabenrechner.html
The child allowance: Calculation and relief for families
The child allowance (Kinderfreibetrag) is also regularly adjusted to cover a child's subsistence level as well as the costs for upbringing, care, and education. For the year 2024, the child allowance was increased by 228 euros to 6,612 euros per child and per parent.
For parents, this means that for two parents, 13,224 euros of income per child is not taxed. This increase can be more noticeable, particularly for those with higher incomes and multiple children. However, here too, the actual tax saving depends on the individual tax rate.
How strong is the relief from the allowance increase really?
Although the increase in the basic allowance and the child allowance represents a step towards relieving taxpayers, the actual effect on the tax burden is rather moderate. For many taxpayers, the increase in the basic allowance results in a tax saving of less than 40 euros.
The increase in the child allowance also provides relief for families; however, the tax saving here is also dependent on income and can be more significant for those with several children.
Why are the allowances not adjusted annually?
The adjustment of the basic allowance and the child allowance takes place every two years, based on the Existenzminimumbericht of the federal government. An annual adjustment would theoretically be possible but would involve high bureaucratic effort and is therefore not planned. The two-year adjustment cycle offers the advantage that the allowances are based on sound data regarding price and wage developments.
Historical development of the allowances
The discussion regarding the tax exemption of the subsistence minimum already began in the 1990s. A milestone was the resolution of the Bundestag in June 1995, which provided for the introduction of the Existenzminimumbericht. Since then, this report has served as the basis for adjusting allowances to ensure that the subsistence level remains tax-free.
Important laws include:
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- Inflationsausgleichsgesetz (2022) (Inflation Compensation Act): This law increased the basic allowance to 11,604 euros and the child allowance to 6,384 euros. However, rising living costs necessitated a further increase in 2024.
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Steuerfortentwicklungsgesetz (2024) (Tax Progress Law): This law provides for further increases in the basic allowance to 12,084 euros for 2025 and to 12,336 euros for 2026, to account for future living costs.
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- More information on this can be found in the Draft Tax Progress Law 2024 (BT-Drucksache 20/12778): https://dserver.bundestag.de/btd/20/127/2012778.pdf
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How are the allowances determined? – Numbers, facts and background on the calculation of basic and child allowances
The increase in the basic tax-free allowance and the child allowance for 2024 is based on the Existenzminimumbericht, which is published every two years. This report ensures that the income necessary to cover basic living costs is not taxed. Here is a deeper look into the process of determining the allowances and the underlying figures.
1. Social welfare standard requirements – Basis for the calculation
The sozialrechtliche Regelbedarfe (social law standard requirements), which correspond to the Hartz IV rates or Citizen's Benefit (Bürgergeld), form the basis for calculating the subsistence level. they determine what financial resources are required to cover basic needs such as housing, food, clothing, and everyday expenses.
For the year 2023, the standard requirements were set as follows:
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- Standard requirement for single adults: 502 euros per month
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- Standard requirement for adult partners in a benefit community: 451 euros per month
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- Standard requirement for children under 6 years: 318 euros per month
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- Standard requirement for children between 6 and 13 years: 348 euros per month
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- Standard requirement for adolescents from 14 to 17 years: 420 euros per month
These standard requirements flow into the calculation of the tax-free subsistence level, which was set at 11,784 euros per person for 2024 (an increase of 180 euros compared to 2023). This increase takes the sharply risen living costs into account.
2. Wage and price development – Influence on the allowances
In addition to the social welfare standard requirements, wage and price developments play a decisive role in determining the basic and child allowances. The Statistisches Bundesamt (Federal Statistical Office) reported an average inflation rate of 6.9% for 2023, which represented a significant burden for citizens.
Rising living costs particularly include:
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- Rents and ancillary costs: Housing costs rose in many regions by up to 10%, especially in metropolitan areas.
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- Food: Food prices rose by an average of 13% in 2023, placing a particular burden on low-income earners.
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- Energy: The costs for energy and fuels recorded a price increase of 19.1%.
Additionally, there was an average wage increase of approximately 3.5% in Germany. The basic allowance was raised to prevent inflation-driven wage increases from leading to a higher tax burden – the phenomenon known as bracket creep (kalte Progression).
3. Child allowance – The subsistence level for children
The child allowance (Kinderfreibetrag) consists of two components: the material subsistence minimum and the allowance for care, upbringing, and education (Betreuungs-, Erziehungs- und Ausbildungsfreibetrag).
For 2024, the child allowance was increased to 6,612 euros per child.
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- Material subsistence minimum: This covers a child's basic needs such as shelter, food, clothing, and school materials. The standard requirements for children flow directly into this calculation.
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- Allowance for care, upbringing, and education: This amount accounts for the additional costs incurred for the care and education of a child, such as daycare costs or school expenses.
4. How the amounts are reached – An example calculation
Based on the standard requirements and price development, the subsistence level that must be exempt from tax is calculated. An example calculation for a single adult shows how the calculation looks in detail:
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- Standard requirement for a single individual: 502 euros per month × 12 months = 6,024 euros per year
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- Costs for housing and heating: 395 euros (average warm rent in Germany) × 12 months = 4,740 euros per year
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- Additional expenses for healthcare and other necessary outlays: approximately 1,000 euros
These components sum up to about 11,764 euros, which corresponds to the basic tax-free allowance of 11,784 euros. This calculation ensures that the subsistence level in Germany remains "tax-free".
5. Adjustment in a two-year cycle
The Existenzminimumbericht is produced every two years and forms the basis for adjusting the allowances. The last major adjustment took place in 2022, when the basic allowance was set at 11,604 euros. In view of the exceptionally high inflation, this amount was increased in 2024 by 180 euros to 11,784 euros.
Further increases are planned for the coming years:
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- 2025: Increase of the basic allowance to 12,084 euros
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- 2026: Increase of the basic allowance to 12,336 euros
These increases are intended to ensure that the subsistence level remains "tax-free", even if living costs continue to rise.
How the allowances are determined
The determination of the basic tax-free allowance and the child allowance is based on a detailed analysis of social law standard requirements, wage and price development, and other data from the Federal Statistical Office. These regular adjustments ensure that the subsistence level remains exempt from tax. The 14th Subsistence Level Report for 2024 has led to an increase in the allowances due to high inflation and rising living costs, in order to relieve citizens and offset bracket creep.
Current standard requirements vs. actual reality of life
The standard requirements (Regelbedarfe) in Germany are intended to cover the basic living costs necessary for a subsistence level. This includes expenses for food, clothing, personal care, household energy, and participation in social and cultural life. However, our research shows that the lump sums in the standard requirement often do not suffice to fully cover the actual living costs.
1. Nutrition
For nutrition, the 2024 standard requirement provides for approximately 170 euros per month. This is significantly lower than what an average adult in Germany actually spends on food and drinks. Depending on lifestyle and region, the real costs for a healthy diet often lie between 200 and 250 euros monthly. The rising food prices, particularly in 2023, have further widened this discrepancy.
2. Household energy (excluding heating costs)
For household energy (electricity, hot water, etc.), approximately 37 euros per month are allocated in the standard requirement. This calculation is based on average values, but actual costs for electricity have risen sharply in recent years. Depending on household size, electricity consumption, and region, monthly electricity costs for a single person household can be between 50 and 80 euros or more.
3. Clothing and personal care
For clothing and shoes, only 37 euros per month are provided in the standard requirement, and about 18 euros for personal care products. While these amounts allow for a certain basic provision, they do not account for the fact that clothing must be bought for different seasons and situations (professional clothing, leisure, special occasions) and that repairs or replacements are occasionally necessary. The rising costs for clothing due to inflation and changed market conditions are not adequately reflected in the standard requirement lump sums.
4. Social and cultural participation
Another problem is the amount of 45 euros for social and cultural participation. This amount barely covers participation in activities such as cinema, sports clubs, cultural events, or excursions, which are essential for a fulfilling social life. Particularly in a time when social isolation is increasing, it is important that people with low incomes have the opportunity to participate in social life.
5. Actual living costs
The actual living costs incurred exceed the allocated standard requirements in many areas. This is especially evident in the areas of nutrition and household energy, where price increases are particularly severe. While the standard requirement provides a basic security, many people are dependent on applying for further state support or help from non-profit organisations to cover their living costs.
Our Statement:
The current standard requirements are an essential part of the welfare state and are intended to guarantee a subsistence minimum. The standard requirement is the basis for the basic tax-free allowance of income tax. However, the discrepancies listed show that the lump sums for food, household energy, clothing, and social participation often fall behind the actual costs. A regular and realistic adjustment of these lump sums to the actual reality of people's lives in Germany would be urgently necessary to ensure that the standard requirement really suffices to cover the subsistence level.
One possibility would be for the federal government to incorporate these factors more strongly into the calculations of the Subsistence Level Report and, when determining the standard requirement, to consider not only average costs but also regional differences and specific living circumstances.
Important but moderate relief
The increase in the allowances for 2024 brings relief for many taxpayers in Germany, yet does not reflect the actual circumstances. The average tax effect often lies only between 27 and 35 euros. For families with several children, the tax savings through the higher child allowance may be more noticeable. However, most people must file an income tax return for 2024 in order to benefit from this.
While the adjustments were made to offset bracket creep and ensure that the subsistence level is not taxed, the design of needs-based support could be more specific.
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Note
**This article is for general information purposes and was carefully created by the editorial team of Lexo.Tax. Personal tax advice can only be provided within the framework of a membership with lexo.tax – and exclusively to the legally permissible extent according to § 4 Nr. 11 StBerG (Tax Consultancy Act).