What are the German government's planned 2026 tax cuts?

The German parliament (Bundestag) has approved a series of tax cuts that may apply from 2026. What might the changes mean for you?

Bundestag approves tax cut package

Members of the Bundestag have approved a package of tax cuts for 2026. The most significant changes include adjusting the German commuter allowance, value-added tax (VAT) in restaurants and tax-free allowances for those in training or volunteering.

Using the German commuter allowance, people who work in Germany can claim their work-related commutes as income-related expenses on their tax return to increase their chances of receiving a tax refund. 

According to the tax-relief package, the allowance will increase to 38 cents per kilometre and will apply from the first kilometre travelled. The allowance previously only applied after the 20th kilometre travelled.

The VAT rate for purchases in restaurants, cafes and other hospitality businesses will be permanently reduced from 19 percent to 7 percent. Germany initially introduced a 7 percent hospitality VAT rate between 2020 and January 2024, to minimise losses in the industry due to coronavirus restrictions.

With the new package, trainers and volunteers, such as sports club trainers, choir masters and volunteer care staff will also enjoy higher tax-free allowances. Trainers will have a new tax-free allowance of 3.330 euros and volunteers of 960 euros.

From 2026, the maximum amounts for tax-free donations to political parties will be doubled. And for Olympic athletes, bonuses for medal winners will no longer be subject to tax.

Overall, the new tax-relief measures have been criticised for primarily benefiting high earners in Germany, rather than the majority of the working population.

Tax cuts still need to be approved in the Bundesrat

While the measures have been approved in the Bundestag, they still need to be approved in the Bundesrat, which represents Germany’s 16 federal states, if they are to become applicable from 2026.

And it isn’t certain that the plan will pass in the Bundesrat. Already in financial difficulty, the tax-relief measures are predicted to cost German state governments around 11,2 billion euros between 2026 and 2030.

And little reassurance has come from the federal government. “There will be no compensation from the federal government,” Finance Minister Lars Klingbeil (SPD) said when the measures were initially announced in October.