Tax Relief in 2025 – What’s Changing for Taxpayers

There have been changes to tax law since the start of 2025: Shortly before the end of the year, the Bundestag and Bundesrat passed the so-called Tax Reform Act. This law is intended to adjust the income tax rates and provide relief to taxpayers. Originally, a more comprehensive package was planned, but many provisions were removed.

What was decided?

The most significant change concerns the income tax schedule, as well as the child allowance and child benefits. This is expected to provide taxpayers with an annual tax relief of approximately 13.7 billion euros in 2025 and 2026. Specifically, this means:

• High-income taxpayers (marginal tax rate of 42%) can look forward to a tax relief of up to 465 euros per year in the best-case scenario.
• Families will benefit from adjusted child allowances and child benefits.

What was removed?

Many of the changes originally planned did not make it into the final law. Among other things, the following points were removed:

• The abolition of tax class combinations III and V.
• Adjustments in the area of charitable status.
• An increase in the limit for pool depreciation to 5,000 euros.
• Continuation of declining-balance depreciation for investments from 2025 to 2028.

These cuts raise the question of whether the law actually represents a further development of tax law—or merely a simple rate change.

Net effect: relief or additional burden?

At first glance, a tax relief of up to 465 euros per year sounds promising. But a closer look reveals that increased social security contributions will eat up a large portion of the relief. Many taxpayers will have less disposable income in 2025 despite the tax relief.

Why is the relief barely noticeable?

Another catch: Although the new tax rules take effect in January 2025, they won’t be visible on pay stubs for the first few months. The reason:

• Employers need time to update their payroll software.
• The new tax calculation schedules will not become mandatory until March 2025.

As a result, there may even be a negative amount on pay stubs in January and February 2025, since the increased social security contributions are already fully in effect, but the tax relief has not yet been factored in.

Conclusion

The 2025 tax relief measures are a step in the right direction, but for many taxpayers, the impact will be less noticeable than hoped. In particular, rising social security contributions are dampening the effect.

If you have any questions about the changes or your tax return, the team at the Trimborn Tax Advisory Firm will be happy to assist you. As tax advisors in Düsseldorf and Oberhausen, we are always available to our clients for tax matters and planning issues.