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Why more salary ends up in your account in December
Updated 11/23/2024Reading time: 2 min.
At the end of the year, employees can be happy: their payroll will be slightly higher. Why that is and how much more money there is.
Good news for taxpayers: After the Bundestag, the Bundesrat also approved the traffic light bill, according to which the so-called basic tax allowance for 2024 will subsequently be increased by another 180 euros. Instead of the previous 11,604 euros, it will now be 11,784 euros.
This means more net salary for you. The basic allowance is the part of your income on which you do not have to pay taxes. If it increases, the net of the gross is correspondingly higher.
Since the 180 euros will be credited to you in one go in December, more money will end up in your account this month. This happens automatically and the employer takes care of the calculation. In addition, there is also the retroactive increase in the child allowance. It increases by 228 euros to 6,612 euros. Depending on the tax class, half of the child tax allowance is granted to each parent (tax classes 4/4) or fully allocated to one parent (tax classes 3/5).
Calculations by the German Taxpayer Institute show how much more net you are likely to have in December. According to this, single people with a gross monthly salary of 2,000 to 7,000 euros will be relieved of around 34 euros. Families with two children receive around 62 euros more with a gross monthly salary of 3,000 euros; with a gross monthly salary of 3,500 to 8,000 euros, they are left with an additional 68 euros net. “Bild” first reported on the calculations.
Further increases in the allowances have also been announced for 2025. For 2025, the basic allowance should be 12,096 euros and for 2026 it will be 12,348 euros. This is necessary to counter the so-called cold progression. In simple terms, the term refers to the problem that people earn more but can still afford less from their salaries. You can read why this is the case here.
The tax allowances are regularly increased and adjusted to the newly calculated subsistence minimum for adults and children. Because no income tax may be levied on it. Every two years, the federal government presents the subsistence minimum report, which, among other things, takes into account wage and price developments in Germany.
While the tax burden is likely to fall next year, social security contributions will go in the other direction. Health insurance contributions are expected to increase significantly. Read here what this means for your net salary.
How will the increased child allowance affect families in Germany this December?
Interview between Time.news Editor and Tax Expert
Editor: Welcome to Time.news, where we break down the latest financial developments affecting you. Today, I’m thrilled to discuss an important decision made by the Bundestag and Bundesrat that will directly impact employees’ wallets this December. Joining me is Dr. Clara Schmidt, a tax expert with over a decade of experience in fiscal policy. Welcome, Dr. Schmidt!
Dr. Schmidt: Thank you! I’m excited to be here and talk about how these changes will benefit employees.
Editor: Let’s dive right in. We’ve just learned that the basic tax allowance for 2024 has been increased by 180 euros. Can you explain what the basic tax allowance is and why this increase matters?
Dr. Schmidt: Absolutely. The basic tax allowance is essentially the portion of your income that is tax-free. This increase means that instead of having to pay taxes on the first 11,604 euros of your income, you can now keep more as it’s shifted to 11,784 euros. A higher tax allowance directly increases the amount of net income you take home.
Editor: So, for employees, what does this actually mean for their December paychecks?
Dr. Schmidt: Since this adjustment goes into effect in December, employees will see that increase reflected in their payroll. Essentially, they will receive an additional amount of 180 euros on top of their usual salary in December, which is a nice year-end bonus for many.
Editor: That sounds fantastic! Is this adjustment automatic, or do employees need to take any action?
Dr. Schmidt: Great question! The good news is that it’s automatic. Employers will handle the calculations, and employees don’t need to do anything to benefit from this increase. It simplifies the process considerably.
Editor: And there’s also an increase in child allowances, correct? How does that factor into this?
Dr. Schmidt: Right! The child allowance is increasing by 228 euros, taking it to 6,612 euros. This change is particularly beneficial for families, as it provides additional financial support, especially with the way allowances are allocated depending on tax classification. For parents who share custody and are in tax classes 4/4, they can expect half of the increase, while those in class 3/5 will see the full allowance increasing for one parent.
Editor: That versatility in tax classes makes it easier for families to strategize their finances. How much more can employees expect in total in December, factoring these changes?
Dr. Schmidt: According to calculations by the German Taxpayer Institute, depending on one’s income and tax class, the increase can vary. However, most employees can generally expect a noticeable bump in their net pay in December, especially if they also benefit from the increased child allowance.
Editor: This does sound like a significant advantage for many workers just in time for the holiday season. How should employees best utilize this extra income?
Dr. Schmidt: It’s always wise to have a plan. Some may choose to save or invest that extra money, while others might allocate it toward holiday expenses or paying down debts. The key is to make sure it aligns with their financial goals and needs.
Editor: Wise words, Dr. Schmidt. It looks like December will bring a bit of relief to many people’s budgets! Thank you for shedding light on these important changes today.
Dr. Schmidt: Thank you for having me! It’s an important topic, and I’m glad we could discuss it.