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Income tax: Federal Council approves inflation adjustment

The Federal Council approved the adjustment for inflation in income tax on Friday. What does that mean now.

November 25, 2022, Berlin: Members of the federal states take part in votes in the Bundesrat.  Among other things, the Chamber of States also votes on citizen income and the housing benefit reform.

November 25, 2022, Berlin: Members of the federal states take part in votes in the Bundesrat. Among other things, the Chamber of States also votes on citizen income and the housing benefit reform.dpa / Wolfgang Kumm

Lower taxes for 48 million citizens: The Federal Council has given the go-ahead for income tax inflation compensation. This ensures that the state will not also benefit from the high prices in the coming year. The so-called cold progression, a kind of secret tax increase caused by inflation, is offset. The federal, state and local governments will thus forgo tax revenue of 18.6 billion euros in 2023.

Finance Minister Christian Lindner (FDP) recently emphasized: If an income of actually 43,000 euros only has a purchasing power of 39,000 euros in the coming year due to inflation, the state should not levy as much tax as if it were still 43,000 euros purchasing power.

Child benefit is to be increased again

The adjustment screws of the income tax rate are now being turned: the basic allowance, i.e. the income up to which no tax has to be paid, increases by 561 euros to 10,908 euros. The top tax rate of 42 percent, which currently applies from a taxable income of 58,597 euros, will only be due in the coming year from 62,827 euros. The federal government is deliberately not touching the limit for the even higher tax rate for the wealthy of 45 percent because it does not believe that additional relief is necessary in this income bracket.

At the same time, the Federal Council decided to increase child benefit again. In the future, the support for families will be a uniform amount of 250 euros per month and child. That means a plus of 31 euros for the first and second child and a plus of 25 euros per month for the third child.

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