A New Tax Reform Package for the Middle Class
Germany’s coalition government has agreed on a big reform package to boost the economy and support workers. Chancellor Friedrich Merz’s government, made up of the CDU, CSU and SPD, presented the plan on July 2, 2026, after a marathon session of talks in Berlin. The reform package includes a series of tax, pension, labor market, and bureaucracy changes described by Finance Minister Lars Klingbeil as the coalition’s “biggest reform package yet.” From January 1, 2027, income tax will be lowered for low- and middle-income earners, worth around 10 billion euros a year, in an effort meant to make everyday life easier for families. To help pay for this relief, people with higher incomes will be taxed more: those earning between 250,000 and 280,000 euros a year will pay 45 percent, while people earning above 280,000 euros will pay 47 percent. The coalition wants to pass the reform package before the Bundestag breaks for its summer recess, though the tax part still needs sign-off from the Bundesrat too, so some details could still shift before anything becomes law.
Freelancers Face Pension Changes
The reform package also brings one of the biggest pension shake-ups Germany has seen in years. Labor Minister Bärbel Bas confirmed the government will move ahead with a 33-point plan built by an independent pension commission. The most important change for internationals: the retirement age would eventually be tied to how long people are expected to live, meaning it could rise gradually past 67 after 2031. Early retirement options are also set to be scrapped, and part of the pension fund would be invested in capital markets rather than sitting untouched. Freelancers, who make up a large share of internationals working in Germany, would also be required to pay into the statutory pension system for the first time, rather than opting out as many currently do. If you are self-employed or thinking about freelancing in Germany, this is one of the biggest changes to watch as the details get finalized later this year.
No More Sick Notes By Phone
One of the most talked-about parts of the reform package affects something almost everyone deals with at some point: getting a sick note, called a “Krankschreibung” in German. Since the pandemic, doctors have been allowed to issue sick notes over the phone, without an in-person visit. Under the new reform package, that option will be scrapped. Going forward, people will need to visit a doctor’s practice in person to get signed off sick, and the note will need to reach the employer from the very first day of illness, rather than after a few days as is common now. Health Minister Nina Warken has pushed for this change, arguing it will ease pressure on doctors’ practices and reduce missed workdays. If you rely on phone consultations because your German is still improving or your practice has long wait times, it is worth planning ahead for how this will work for you.
Longer Fixed-Term Contracts for Job Seekers
For internationals building a career in Germany, one labor market change stands out. Employers will be allowed to hire staff on fixed-term contracts for up to four years, instead of the current two-year limit. This is meant to give companies more flexibility to hire, which could open up more opportunities for job seekers and recent graduates entering the German job market, though it also means longer stretches without the security of a permanent contract. Separately, from 2027 it will also be easier for employers to dismiss high-earning staff with a severance payment, a change that will mostly affect people paid a very high salary. The coalition has also agreed to cut back on some reporting requirements for companies, as part of a wider push to reduce bureaucracy and make Germany more attractive for business and hiring.
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