What has changed (so far) in 2024

Every new year brings changes to tax and social security law. However, the majority of these changes have still not been passed by the Federal Council.

The new year regularly brings with it a whole mountain of changes to tax and social security law. The fact that 2024 is out of the ordinary here is due to the fact that the Bundesrat has referred the Growth Opportunities Act to the Mediation Committee. This law, which also serves as an annual tax law for 2023, contains the majority of the tax changes that were due to come into force at the beginning of the year.

Most of these changes in the Growth Opportunities Act will come into force retroactively from January 1, 2024, provided the Bundesrat approves this law in March. In times of tight budgets, the Bundesrat and Bundestag have made a number of adjustments to the law in the mediation committee in order to reduce the financial burden on the federal states (more on this in the article "Interim status of the Growth Opportunities Act"). If the law is passed by the Bundesrat, a summary of the other changes will of course follow in one of the next issues. Until then, let's take a look at the changes that came into force at the beginning of the year:

• Basic allowance: Following an increase of 561 euros in 2023, the basic tax-free allowance, also known as the "tax-free minimum subsistence level", will rise by 696 euros in 2024, from 10,908 euros to 11,604 euros.

• Cold progression: The effect of "cold progression" is offset annually to ensure that wage increases are also reflected in employees' wallets. To this end, the benchmark values of the income tax rate will be increased by 6.3 % in line with expected inflation. This means that the top tax rate of 42 % will take effect in 2024 at EUR 66,761 - an increase of EUR 3,951 compared to the previous year. The so-called "wealth tax" of 45 % from 277,826 euros is excluded from this adjustment.

• Solidarity surcharge: For the first time since the partial abolition of the solidarity surcharge, the tax-free amount was raised from EUR 16,956 to EUR 17,543 in 2023. For 2024, the tax-free amount will increase by a further 587 euros to 18,130 euros (36,260 euros instead of 35,086 euros for joint tax assessment) The tax-free amount does not relate to the taxable income, but to the assessed income tax. The solidarity surcharge is therefore only payable if the income tax is higher than the tax-free amount.

  

• Child allowance: The child allowance, which was increased by €202 per parent to €3,012 in 2023, will rise by a further €180 per parent to €3,192 in 2024. The allowance for care and education needs of €1,464 per parent, on the other hand, remains unchanged. This means that both parents together can claim a total allowance of €9,312 per child this year.

• Maximum maintenance amount: The maximum amount for the deduction of maintenance payments, the amount of which has been linked to the basic tax-free allowance since 2022, will also rise to EUR 11,604.

• Minimum Wage: At the turn of the year, the statutory minimum wage rose from 12.00 euros to 12.41 euros per hour. The next increase is planned for January 1, 2025 to 12.82 euros.

• Mini-job earnings limit: The increase in the statutory minimum wage will also raise the maximum monthly earnings limit for a mini-job from EUR 520 in 2023 to EUR 538 in 2024.

• Employee savings allowance: The income limits for the employee savings allowance were doubled in 2024 to €40,000 for single people and to €80,000 for joint taxpayers.

• Employee share ownership: The tax-free allowance for employee shareholdings in the employer's company will increase from EUR 1,440 to EUR 2,000.

• Pension lump sum: When deducting income tax, reductions in long-term care insurance contributions for children are now taken into account accordingly in the flat-rate pension allowance, which will lead to additional annual tax revenue of around EUR 250 million for the state.

• Gastronomy: Since January 1, a uniform VAT rate of 19 % has once again applied to both food and beverages in the catering sector. The temporary reduction in the tax rate for food to 7 % expired at the end of 2023.

• Interest barrier: Due to the requirements of the EU's Anti-Tax Avoidance Directive, the regulations on the interest barrier will be adjusted from 2024. The law also clarified the term "net interest expenses" and made it clear that an EBITDA carryforward does not arise in financial years in which interest expenses do not exceed interest income. In future, interest carried forward can only be deducted if there is sufficient offsettable EBITDA.

• Economic identification number: The business identification number (W-IdNr.) is to be issued from fall 2024. This will give every economically active natural person, legal entity and association of persons a uniform and permanent feature for unique identification in the taxation procedure. The W-IdNr. is made up of the abbreviation "DE" and nine digits. The W-IdNr. is supplemented by a 5-digit distinguishing feature for individual activities, businesses or permanent establishments (example: DE123456789-00001). The W-IdNr. also serves as a uniform national business number in accordance with the Basic Business Data Register Act. The basic business data register is intended to relieve companies of reporting obligations by avoiding multiple reporting of master data to different registers ("once-only" principle).

• MoPeG: The modernization of partnership law came into force at the turn of the year. Tax law was adapted to this reform in several areas. This includes a change to real estate transfer tax, which maintains the previous tax exemption regulation for joint assets by treating the company assets of partnerships with legal capacity as joint assets for real estate transfer tax purposes from 2024. This regulation, which was originally only intended as a transitional regulation until the end of 2024, now applies until the end of 2026, which gives the legislator sufficient time for the planned reform of the real estate transfer tax, in which the tax exemption regulations should then also be fundamentally revised.

• Digitization of the donation process: The register of recipients of donations at the Federal Central Tax Office is a core element of the digitization of the donation verification procedure. From January 1, 2024, the register will be successively filled with the data of charitable associations and foundations, political parties and public corporations. Organizations operating in the EU and recognized as tax-privileged under German non-profit law will also be included. Registered donation recipients receive access to the donation receipt via the officially prescribed forms or the electronic donation receipt.

• Data exchange: The exchange of data between private health and long-term care insurance, the tax authorities and employers, which was originally scheduled to start on January 1, 2024, has been postponed by two years.

• Wohn-Riester: If the capital saved from a Riester contract is used for an owner-occupied property (Wohn-Riester), the saved capital can also be used for energy-related measures from 2024. The prerequisite is that no other tax concessions or subsidies are claimed for the construction work.

• Low tax thresholds: As part of the introduction of global effective minimum taxation, the low tax thresholds for add-back taxation and the license barrier were reduced from 25 % to 15 %.

• Payment service provider: From 2024, payment service providers will be obliged to regularly inform the Federal Central Tax Office about cross-border payments if more than 25 payments are made to the same payee in a quarter. This implements an EU requirement.