How high is the basic allowance in 2024?

The basic allowance for the tax year 2024—the year currently relevant for tax payments—is 11,604 €. This amount represents the income threshold below which individuals in Germany do not pay income tax, providing a tax-free cushion to meet essential living expenses. It was 10,908 € in 2023 and will be raised to 12,084 € in 2025.

Basic allowance for married couples

The basic allowance doubles for individuals filing jointly (as is typical for married couples), providing a more significant tax-free threshold. 

What does the basic allowance mean?

The basic allowance is a tax-free amount of annual income. You do not have to pay income tax if your taxable income falls below this amount. However, if your income exceeds the basic allowance, income tax will be due on the portion above it. 

For employees, income tax is often withheld directly from wages, sometimes resulting in overpayment. In such cases, filing a tax return can help recover any excess withheld.

Who is eligible for the basic allowance?

The basic allowance applies to all taxable individuals in Germany, regardless of employment status:

• Employees

• Self-employed

• Investors

• Trainees

• Students

• Pensioners

Purpose of the basic allowance: The minimum subsistence level

The basic allowance is intended to ensure that individuals have the financial means to support a minimal standard of living. This threshold is calculated based on the material subsistence minimum set by the federal government through a report published every two years. The minimum includes estimated costs for:

• Nutrition

• Clothing

• Personal care

• Housing

• Heating costs

• Health and long-term care insurance

• Mobility

• Education

• Leisure and cultural activities

Subsistence level for children: Child benefit and child allowance

Child benefits and allowances cover the tax-free subsistence level for children. Parents initially receive child benefits after applying, and when they file a tax return, the tax office checks whether the child allowance provides a more favorable tax outcome than the child benefit amount.

Work expenses that can lower tax burden

If your income exceeds the basic allowance, several deductions can reduce your taxable income and lower your tax burden. Employees, for example, may benefit from the employee allowance, which allows an additional €1,230 of income to remain tax-free. This offset accounts for work-related expenses necessary for maintaining employment, such as:

• Commuting costs

• Work-related equipment expenses

• Business travel expenses

• Application costs for job changes

Understanding bracket creep and the basic allowance

Germany uses a progressive tax system, meaning tax rates increase with income. This progressive structure is intended to provide a fairer tax burden distribution. However, this system also leads to “bracket creep”—an effect where increased income does not significantly boost take-home pay because it pushes individuals into higher tax brackets, leading to higher tax rates on additional income.

For example, income exceeding the basic allowance is initially taxed at 14%. As income rises, tax rates increase, reaching a maximum of 42% for high incomes and up to 45% for top earners. Thus, the basic allowance is a buffer against bracket creep, but inflation and rising living costs can still erode purchasing power over time.

Frequently Asked Questions: Basic allowance

How high is the minimum subsistence level?

The federal government sets the minimum subsistence level in Germany and is a baseline for calculating the basic allowance. The basic allowance in 2024 is 11,604 €, which aligns with the minimum required to cover basic living costs.

Do I need to apply for the basic allowance?

No, the basic allowance is applied automatically to all taxpayers, so there’s no need to file a specific application.

What expenses are covered by the basic allowance?

The basic allowance is based on the subsistence level, determined by essential costs, including food, housing, energy, personal care, and minimal cultural and social participation needs.

How much income is tax-free under the basic allowance?

Income up to the amount of the basic allowance is tax-free. For 2024, this amount is 11,604 €, meaning that individuals do not pay taxes on income below this threshold.

Is the basic allowance adjusted regularly?

Yes, the federal government reviews the subsistence level every two years, and the basic allowance is adjusted to keep pace with inflation and changes in the cost of living.

How is the basic allowance deducted from income?

The basic allowance is subtracted from taxable income, reducing the amount on which taxes are calculated. For detailed rules on taxable income, refer to relevant tax guidelines.