October 20, 2026, 10:18 am | Read time: 5 minutes
Through the planned tax reform, the federal government aims to relieve millions of employees starting in 2027. However, those who believe the higher standard deduction for employees will automatically result in 200 euros more net income may be disappointed. In reality, the direct effect is often significantly smaller. Together with other planned tax changes, many employees could still end up with noticeably more money in their wallets.
The planned increase in the standard deduction for employees is currently causing many misunderstandings. While the deduction is set to rise by 200 euros starting January 2027, this money will not be paid out. Instead, it merely reduces the portion of income subject to taxes.
For many employees, this means the actual relief from the higher deduction alone is often only a few dozen euros per year rather than 200 euros. How much the tax burden decreases depends on individual income and personal tax rate.
Overview
Standard Deduction for Employees Rises to 1,430 Euros
The standard deduction for employees is set to increase from 1,230 euros to 1,430 euros according to current plans. This deduction automatically accounts for typical work-related expenses, such as costs for work materials, professional literature, or work-related travel.
The advantage: Employees do not need to individually prove such expenses up to this amount. At the same time, taxable income is reduced by another 200 euros.
Who Benefits Most from the Change?
Employees with low or medium work-related expenses are among the winners of the 2027 tax reform.
Example 1: Low Work-Related Expenses
An employee has work-related expenses of only 800 euros per year.
- In 2026, 1,230 euros are automatically considered.
- In 2027, 1,430 euros could be automatically considered.
Their tax deduction for work-related expenses increases from 1,230 euros to 1,430 euros, even though their actual expenses remain only 800 euros.
Example 2: High Work-Related Expenses
An employee claims 1,700 euros in work-related expenses.
- In 2026, 1,700 euros are already considered.
- In 2027, 1,700 euros are also considered.
For them, the higher deduction has no additional effect because their actual costs already exceed the deduction.
Basic Allowance Also Set to Increase
The standard deduction for employees is just one part of a much larger tax package. Only the combination of all planned measures is likely to make a noticeable difference for many households.
In addition to the standard deduction, the federal government plans to raise the basic allowance. Currently at 12,348 euros, it is set to increase to 12,564 euros in 2027. Another increase to 12,900 euros is already planned for 2028.
The basic allowance ensures that the minimum subsistence level remains tax-free. With the increase, employees will not have to pay income tax on a larger portion of their earnings.
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Focus on Small and Medium Incomes
Another planned change is likely to be particularly interesting for many employees: the adjustment of the income tax rate. The federal government wants to ease the progression so that salary increases are not quickly consumed by rising tax rates. This could benefit employees with small and medium incomes.
For many households, this aspect could be financially even more important than the increase in the standard deduction for employees.
Families Could Be the Biggest Winners
While childless employees mainly benefit from the tax changes, families are set to receive multiple reliefs.
Planned measures include:
- higher child benefits,
- higher child allowances,
- relief through the income tax rate,
- a higher basic allowance.
This could result in annual relief for families being significantly higher than for single households.
Tax Return Still Worthwhile
The higher standard deduction for employees does not make the tax return obsolete.
Those who spend more than 1,430 euros on work-related expenses should continue to claim these costs individually. This can quickly be the case with long commutes, maintaining a second household, expensive training, or larger work-related purchases. For many employees, the tax return may still become simpler because they need to prove fewer work-related expenses.
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Top Earners Should Contribute More
For top earners, the balance of the 2027 tax reform is more mixed. While they also benefit from the higher standard deduction and the rising basic allowance, very high incomes are expected to contribute more to financing the tax reform.
According to the draft law, the wealth tax rate of 45 percent will apply to taxable income starting at 250,000 euros. Additionally, a new tax rate of 47 percent will apply from 280,000 euros. These additional burdens mainly affect high earners and not the broad middle class.
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The 2027 Tax Reform Is Not Yet Finalized
However, it is important to note: The planned changes are not yet law. The tax package is still in the legislative process. Only after the parliamentary consultations are completed will it be clear which regulations will actually take effect on January 1, 2027.
Those hoping for 200 euros more net income solely from the higher standard deduction for employees will likely be disappointed. The immediate relief is usually too small for that. The real impact of the reform lies in the overall package. A higher standard deduction, rising basic allowance, a more favorable rate for small and medium incomes, and additional benefits for families could ensure that many employees actually keep more net income from their gross starting in 2027. The higher deduction is just the most visible part of a much larger tax reform.