From 2021 onwards, the child allowance (Kindergeld) and the tax deduction for children (Kinderfreibeträge) will be increased by 15€ per month. This decision was took from the Government taking care of the increased cost of living. This will be the second increase in just under a year, as a monthly increase of 10€ was already granted on Kindergeld last summer.
From January 2021, 219€ will be paid monthly for the first and second child, 225€ for the third child and 250€ for each additional child. The amount for tax deductions for dependent children will also be increased from the current 7812€ to 8388€. The basic tax-free allowance (Grundfreibetrag), currently 9408€, will be increased to 9696€. This will be granted as an alternative to the child allowance for those receiving income above a certain income threshold.
Opposition parties criticise this government measure
Parents can use either the dependent child allowance (Kindergeld) or the tax deduction for dependent children (Kinderfreibetrag). The deduction reduces income tax and is therefore particularly useful for workers with a higher income. It will be directly the Finanzamt to decide which help is the most appropriate for the family.
The opposition has criticised the fact that this manoeuvre will benefit with greater tax relief families who would not need it at all. Those with very low incomes, on the other hand, would not benefit at all, because the Kindergelds would end up being deducted from the Hartz-IV aid. The Sozialverband VdK joined the criticism and explained that lone parents would hardly benefit at all, as family allowances for dependent children are deducted in the advance on maintenance payments (Unterhaltvorschuss).
According to the Union and the SPD, the Grand Coalition had already planned such an increase within the coalition agreement made after the last federal elections and the fact that they are implementing it despite the current economic crisis shows what the Coalition’s priorities are.
Increase in the basic allowance
In general, from next year all taxpayers will be financially supported, as the basic tax-free deductible will be increased from 9408€ to 9696€. The limit, from which the maximum tax rate of 42% is required, will increase from €57,052 to an annual profit of €57,919. A further increase in these income limits is planned for 2022. In addition, lone parents will be able to deduct higher maintenance allowances from their taxes in the future.
Increase in disability forfeits
People with disabilities will also receive better tax treatment: The lump sums introduced in 1975 and not increased for 45 years for additional expenses due to disability will therefore be doubled. In addition, annual lump sums for travel expenses will be introduced. Reimbursements will therefore be simplified.
The amounts to be credited depend on the extent of the disability problem and the degree of assistance. They can be up to 2840€. For disabled people who are helpless, as well as for the blind, it will be 7400€ in the future. The lump sum for nursing care increases up to 1800€. A lump sum for disabled people will also be introduced up to 4500€.
The president of the Sozialverband VdK, Verena Bentele, said that this is an important step forward and that despite the Covid-19 pandemic the government is fulfilling its responsibility towards people with disabilities.
Care of relatives
For the care of family members you will receive higher tax benefits: The lump-sum allowance for the two highest levels of nursing care will be increased to 1800€ per year and will therefore be almost doubled. For the lower two and three levels of nursing care, which have not been taken into account so far, a lump sum of 600€ and 1100€ respectively will be granted in the future. The Ministry of Health estimates that more than half a million people could benefit from this.
The Federal Council has yet to approve the plans
The government estimates the total cost of the childcare allowance and other tax relief to be just under €12 billion in full annual effect, including €5 billion for the federal government. The Federal Council has not yet approved the plans.