With the Koalitionsvertrag 2025 (2025 Coalition Agreement) between the CDU, CSU, and SPD, the new federal government has agreed on comprehensive tax policy measures. Many of these changes specifically affect what concerns millions of citizens every year: Einkommensteuer (Income Tax).
What are the most important planned tax reforms anchored in the coalition agreement? Here they are, explained clearly and with a focus on what will change for employees, families, retirees, and the self-employed in the future.
1. Pendlerpauschale: More Tax Relief for Commuters with Longer Journeys
From 01.01.2026, the Pendlerpauschale (commuter allowance) will be permanently increased to 38 cents per kilometre – from the very first kilometre. Previously, the rate of 30 cents applied to the first 20 kilometres, with 38 cents only starting from the 21st kilometre. The new regulation simplifies accounting and brings noticeable relief for commuters, especially in rural areas.
The distance allowance continues to be independent of the means of transport – meaning it also applies to carpoolers, cyclists, or users of public transport.
2. Kinderfreibetrag and Childcare Costs: Greater Relief for Families
A major focus is on the tax promotion of families. According to the coalition agreement, the Kinderfreibetrag (child tax allowance) will be step-wise increased to keep pace with the real subsistence level.
Furthermore, from 2025, 80 percent of childcare costs will be tax-deductible, instead of the previous two-thirds. The deductible maximum amount increases from 4,000 to 4,800 euros per child per year. This change primarily affects parents with crèche, kindergarten, or after-school care costs.
3. Overtime and Part-time: New Tax-Free Bonuses
The federal government plans to make bonuses for overtime tax-free, provided the overtime exceeds the collectively agreed or contractually agreed working hours. This not only adjusts tax law to provide relief but is also intended to increase the motivation to take on extra work.
For part-time employees who voluntarily increase their hours, employers should be able to pay tax-privileged bonuses in the future. These are to be made tax-free to make expanding working hours more attractive.
4. Early-Start Pension (Frühstart-Rente): Tax-Free Provision for Children
A new concept is the so-called Frühstart-Rente. For every child between the ages of six and 18 who attends an educational institution, the state pays 10 euros per month into an individual, capital-funded pension depot.
- The credit can be supplemented privately starting at age 18.
- Returns remain tax-free until retirement.
- Payouts occur at the regular retirement age.
- The capital is protected from state access.
A modern provision model that can also influence the future tax burden in old age.
5. Pension Provisions, Pension Policy, and Tax Exemption for Side Income
The pension reform is accompanied by tax incentives:
- Working beyond the retirement age becomes more attractive from a tax perspective: Up to 2,000 euros of monthly income remains tax-free if the person voluntarily continues to work.
- Occupational pension schemes are to be simplified, digitalised, and expanded – particularly for small companies.
- For the self-employed, a mandatory entry into a pension system is planned – optionally statutory or private, however with protection for existing provision solutions.
6. Tax Incentives for Home Ownership
In the real estate sector, the coalition agreement sets specific tax incentives:
- Introduction of the "Starthilfe Wohneigentum" (Home Ownership Start-up Aid) programme for families with low and medium incomes.
- Guarantees and equity-replacing grants for real estate financing.
- Special depreciation (Sonderabschreibungen) for new construction and renovation.
- Merging of KfW programmes into two central funding structures for new construction and modernisation.
This is intended to make the acquisition of residential property easier, more predictable, and more attractive from a tax standpoint.
7. Allowances for Volunteering: More Tax-Free Room
The Übungsleiterpauschale (trainer allowance) will be increased to 3,300 euros annually, while the Ehrenamtspauschale (volunteer allowance) rises to 960 euros. These amounts remain tax-free if certain conditions are met (e.g., secondary occupation, non-profit activity).
In this way, the state strengthens voluntary engagement and simultaneously reduces the administrative burden in the income tax return.
8. Digitalisation of Tax Administration: Less Effort for Everyone
The coalition agreement contains a clear commitment to the digitalisation of the tax administration:
- Introduction of the Once-Only Principle: Data only needs to be provided once – usable across multiple authorities.
- Expansion of automated assessments and voucher retrieval.
- Tax assessments should be faster, more transparent, and without media discontinuity.
- Written form requirements (e.g., for employment contracts, fixed-term contracts) are to be reduced or replaced by digital solutions.
The goal: less paperwork, shorter processing times, and greater service friendliness.
9. Other Tax-Relevant Points at a Glance
- Increase of the Grundfreibetrag (basic tax-free allowance) to adjust for inflation and price developments (specific figures not yet determined).
- Promotion of climate-friendly mobility through motor vehicle tax exemption for electric cars until 2035, special depreciation, and investment incentives.
- Simplification of import VAT for companies through an offset model.
- Reform of tax statistical obligations: 2-year moratorium on new regulations, review of existing obligations.
- Sanctions for social benefit abuse with expanded data matching, including between tax authorities and social security providers.
The 2025 Coalition Agreement Significantly Changes Tax Law
Whether it is the Pendlerpauschale, childcare, overtime, pension provision, or digitalisation: The Koalitionsvertrag 2025 brings comprehensive tax changes – many of which will be noticeable in people's daily lives.
For members of a Lohnsteuerhilfeverein (income tax assistance association) like lex.tax, a look at the details is worthwhile: We check which new lump sums, allowances, or funding opportunities are relevant to you – and ensure that you fully exploit all benefits in your 2025 and 2026 income tax returns.
Get advice from us now – digitally or in person. We are here for you.
Note This article is for general information purposes and was carefully created by the lexo.tax editorial team. Personal tax advice can only be provided within the framework of a membership with lexo.tax – and exclusively to the extent legally permitted under § 4 Nr. 11 StBerG (Tax Consultancy Act).