Financial policy: 1,840 euros flat rate or new working day flat rate – the federal and state governments are planning tax simplification

Berlin. Finance Minister Lars Klingbeil (SPD) and his colleagues from the federal states are working on comprehensive tax simplifications for citizens and companies. In the future, millions of employees will no longer have to claim income-related expenses individually because these will be taken into account as a flat rate in income tax. This emerges from documents from the Ministry of Finance that are available to Handelsblatt.

The paper lists 37 measures that are currently being negotiated between the federal and state governments under the title “Autumn Package”. According to the overview, agreement was reached on the majority of measures. This primarily concerns simplifications for companies.

However, when it comes to a key point for employees, the experts from Klingbeil and the experts from the state finance ministries are still wrestling with the specific design. The goal is clear: If possible, employees should no longer have to file a tax return in order to individually prove expenses for the way to work, the home office, training costs or work clothing and to claim them against income tax.

The federal states have proposed a new flat rate that incorporates the previous flat rates: the working day flat rate. The idea goes back to a commission of experts that presented a catalog of recommendations to the former Finance Minister Christian Lindner (FDP).

Accordingly, the working day allowance would, among other things, be bundled with advertising costs for the home office, the home office allowance and the commuter allowance. At that time, six euros per working day was mentioned as a possible amount.

However, Klingbeil's officials are skeptical about the proposal, as the paper shows. It requires a “significant system change” and “leads to billions in tax revenue shortfalls”.

That is why the Federal Ministry of Finance has made a counter-proposal: It wants to significantly increase the existing employee allowance. It is currently 1230 euros. As part of their tax reform, the Union and SPD had already agreed on an increase of 200 euros to 1,430 euros. Now Klingbeil's officials are proposing a further increase to 1,840 euros.

The employee flat rate, often also called a flat rate for business expenses, is automatically taken into account when deducting monthly income tax without any evidence having to be provided. Evidence is only worthwhile for employees whose income-related expenses are above the flat rate.

As a result of the increase to 1,840 euros, “3.7 million taxpayers” would no longer have to collect evidence and claim it in their tax return because “their actual expenses are below the new flat rate for income-related expenses,” according to the paper.

However, the measure would lead to a significant reduction in revenue for the tax authorities. As a rule of thumb: If the employee allowance increases by 100 euros, the state collects 600 million euros less in taxes.

Klingbeil's experts therefore want to combine the increase with a second measure: the deduction of income-related expenses should be limited for all employees who are above the flat rate amount. Only expenses from five core areas can then be claimed: travel expenses, travel expenses, training costs, membership fees for unions, home office allowance. This restriction leads “almost to revenue neutrality,” says the paper.

However, the states of Bavaria and North Rhine-Westphalia have concerns about this idea, as the paper states. Bavaria complains that long-distance commuters are being disadvantaged because – unlike today – they would no longer be able to claim their costs that exceed the increased flat rate. NRW is bothered by the fact that work equipment such as a laptop or work clothing is no longer taken into account.

As a compromise, it was discussed that - as desired by the Federal Ministry of Finance - instead of a new flat rate for working days, the existing flat rate should be increased. At the same time, however, advertising costs should not be limited to a few core areas.

Instead, there should be a new limit: only business expenses that exceed a certain amount should be able to be claimed additionally. This would provide tax relief for employees who have particularly high costs, but would limit the costs for the tax authorities.

According to insiders, it remains to be seen what the federal and state governments will ultimately agree on. Both the federal and state governments emphasize that the discussions are very constructive. There is a serious desire on all sides to implement simplifications. The aim of the project is to relieve both taxpayers and the financial administration of bureaucracy.

The paper also provides many simplifications for the economy, both for small and medium-sized companies as well as for corporations. Among other things, the so-called options model is to be improved through various changes.

It allows partnerships subject to income tax to switch to corporate tax. The black-red coalition has decided to gradually reduce corporate tax from 2028, while income tax for very high incomes is to increase.