New fuel for the traffic lights: Finance Minister Christian Lindner (FDP) wants to increase the child allowance, but not child benefit. For this he is facing headwinds from his coalition partner, the SPD. SPD leader Lars Klingbeil believes that it is unfair to only relieve the burden on families with very high incomes. In the “Bild”, Klingbeil also called for relief for the working middle class, which is still feeling the consequences of inflation. “That’s why it’s completely clear to me that families with small and medium incomes also have to get more this year,” said the SPD chairman.
However, the Federal Ministry of Finance is ignoring Klingbeil. “The criticism is incomprehensible to us,” said a spokesman in response to a query from Capital. Child benefit was increased as early as November 2022 in order to relieve families of the rising prices – disproportionately and prematurely. At that time, the Inflation Compensation Act stipulated that the family benefit increased from 219 euros to a uniform 250 euros per month per child. “The early increase in the child allowance has not yet taken place, which is why there is a constitutional need to catch up,” the Federal Ministry of Finance continued on X (formerly Twitter). So who is right in this dispute?
One thing is certain: the child allowances generally only pay off for families with higher incomes. For example, a married couple with one child must have around 80,000 euros in taxable income so that the tax relief through the child tax allowance has a greater impact than the child benefit. For families who are on the top tax rate, the tax relief amounts to up to 3,911 euros per year. Calculated per month, that’s 325 euros.
For comparison: a family of three with a taxable income of 50,000 euros only saves a good 2,420 euros with the allowances of 9,312 euros.
According to the case law of the Federal Constitutional Court, the subsistence minimum for children must remain tax-free. The state initially ensures this with a monthly financial injection: Families currently receive 250 euros in child benefit per month for each child – 3,000 euros per year.
However, the benefit is only an advance payment of the child allowance, which parents can subsequently claim via their tax return at the end of the year. This reduces your taxable income and therefore the tax you have to pay. The child allowance was 5,620 euros per parent in 2022 and was increased by 404 euros last year. At the beginning of this year, another 360 euros were added. In 2024, two parents can benefit from a child tax allowance of 6,384 euros plus a tax allowance of 2,928 euros for care, upbringing and training – a total of 9,312 euros per child.
The tax office checks how high the tax relief is due to the two allowances. This is compared to the child benefit that the family fund has already paid out during the year. If the allowances provide more relief than the child benefit has contributed to a family’s household budget, the tax office takes the allowances into account when calculating taxes. It then adds the child benefit back to the tax. This way no one benefits twice. The remaining difference is the actual advantage.
According to Lindner’s plans, the child allowance should increase again retroactively from the beginning of the year, by a further 228 euros to 6,612 euros. The increase ultimately results in an allowance per child of 9,540 euros, which the tax office takes into account. For top earners, this can ultimately mean a tax relief of a good 4,000 euros – around 330 euros per month.
Criticism of Lindner’s plans comes not only from the coalition partner SPD, but also from economists. In times of tight budgets, economist Jens Südekum believes it is sending the wrong signal to insist on relief for upper incomes now.
“Since 2022, child benefit has been increased by 14 percent in percentage terms,” says the economics professor at the University of Düsseldorf to Capital. In the same period, however, the adjustments to the child tax allowance only led to a maximum of 9 percent more tax savings.” If Lindner prevails with his plans, this will also increase the possible tax savings through the child tax allowance to 14 percent more compared to 2022. “It has all been recently Families are relieved, the top earners only slightly less than families with medium or low incomes,” said Südekum.
Parents are entitled to child benefit and child allowances for every child who lives in their household, including adopted and foster children. This applies until the child’s 18th birthday. Under certain conditions, parents also receive the benefits for their adult offspring, for example if they are training for a job or studying. The benefits come to an end by your 25th birthday at the latest.
Once applied for, the family fund automatically pays out child benefit, but only retroactively for six months. New parents should therefore apply for the money immediately after the birth.
Alternatively, parents receive the child tax credit when they file their tax return. A “child attachment” must be included for each child. The tax office then carries out the cheaper check and compares which benefit is more beneficial to the family – child benefit or child allowances.
For unmarried mothers and fathers and those who live permanently separated, each parent is entitled to half of the child allowance and half of the allowance for care, upbringing and training. If you want to benefit from the full allowances, you must have the other parent’s halves transferred to you. For single parents with low incomes, it is often cheaper to use only the full childcare allowance instead of both child allowances. Then the tax office only offsets half of the child benefit.
This article first appeared in the business magazine “Capital”, which, like stern, is part of RTL Deutschland.
