Tax Updates 2026 – Germany

Under the mileage allowance scheme, commuters can claim tax relief on the cost of travelling between their home and their primary place of work as income-related expenses. Previously, 0,30€ could be claimed for each kilometre travelled (i.e. only the distance for one journey, not the return journey), and from the 21st kilometre onwards, the flat rate increased to 0,38€ per kilometre. Under the new legal regulations, 0,38€ will now be granted from the first kilometre of the single journey.

The increase will apply to journeys from 1 January 2026 and will also apply to journeys made in the context of maintaining two households.

In addition, the so-called mobility allowance for low-income earners, which can be used as an alternative to the distance allowance is now permanent. Originally, the regulation was only supposed to apply until the 2026 assessment period.

Note: An employee allowance of 1,230€ is already taken into account via the income tax deduction. In order for the mileage allowance to have an effective tax-reducing effect, its amount, possibly together with other income-related expenses, must exceed 1,230€ in the calendar year.

Civic engagement will now receive greater tax incentives. From 2026, the flat rate for trainers will increase from 3,000€ to 3,300€ and the flat rate for volunteers from 840€ to 960€.

Contributions for trade /labour union membership will in future be deductible as income-related expenses in addition to the employee allowance of 1,230€ and the allowance for pension payments of 102€. This ensures that the contributions will definitely have an impact on the employee. The regulation applies to contributions paid from 1 January 2026 onwards.

Donations and membership fees to political parties and voter associations are recognised by the tax office as tax relief in the tax return. Currently, up to 1,650€ can be claimed, and up to 3,300€ is eligible for jointly assessed spouses/civil partners. The specific tax reduction amounts to 50% of these amounts, i.e. 825€ for single persons and 1,650€ for jointly assessed persons. From 2026 onwards, the aforementioned maximum amounts will be increased to 3,300€ or 6,600€ for joint assessment. This will result in a doubling of the tax reduction to a maximum of 1,650€ or 3,300€.

If the maximum amounts for the tax reduction are used up, any additional payments can be deducted as special expenses. Here, too, the maximum deduction amount of 1,650€ for single taxpayers and 3,300€ for jointly assessed taxpayers has been doubled to 3,300€ and 6,600€ per year, respectively. The option of an additional special expense deduction only applies to donations to parties within the meaning of the Political Parties Act, not to voter associations.

Note: The deduction is generally only possible if the party or association is not excluded from partial state funding. A donation receipt from the recipient is also required as proof for the deduction. A transfer receipt is sufficient for amounts up to 300€.

The costs of accommodation when maintaining two households abroad (e.g. as part of a secondment) are capped at 2,000€ per month. A deduction exceeding this amount is only possible if the service or company accommodation abroad is used on a mandatory and purpose-specific basis. Similarly, a deduction of higher costs is possible if the accommodation has been recognised as necessary for the purposes of the rent subsidy under Section 54 of the Federal Remuneration Act (Bundesbesoldungsgesetz). The regulation is to be applied for the first time to the current salary paid for a salary payment period ending after 31 December 2025.

Note: Costs for the appropriate and necessary furnishing of the accommodation are not included in the maximum amount of 2,000€ and can be claimed additionally.

The circumstances under which loss deduction for income from agriculture and forestry is excluded have been expanded to include cases where a loss from an assessment period (AP) in the second observation period is carried back to an AP in the first observation period.

The sales tax rate for food in the catering industry will be permanently reduced to the reduced rate of 7% from 1 January 2026. The reduction applies to both food consumed on the premises and takeaway food. In both cases, the standard tax rate of 19% will continue to apply to beverages.

Company events of a festive nature are exempt from tax and social security contributions for employees within the scope of an allowance of 110€ per event for a maximum of two events per year. For amounts exceeding the allowance, a flat-rate income tax of 25% may be applied in addition; social security contributions are then waived.

In response to the Federal Fiscal Court ruling from 2024, the legislator has now clarified that the flat rate is only applicable if the event is open to all members of the company or part of the company. The regulation will apply from 2026.

Tax-privileged entities (e.g. non-profit associations) are generally required to use their funds promptly. However, this does not apply if the annual income is less than 45,000€. This amount has been increased to 100,000€; this will apply from 2026.