Since 1 January 2026, important changes in German tax law as well as new rules in wage tax and social security have come into force. This article provides an overview of the key tax changes for 2026 and highlights what companies should pay particular attention to in payroll, HR and compliance.
1. Company Events: New Rules for Lump-Sum Taxation
The tax-free allowance of EUR 110 per employee and event remains unchanged in 2026. It can be applied to a maximum of two company events per year and only if the event is open to all employees of the business or of a clearly defined part of the business.
A key change is that this requirement of being open to all now also applies to the flat-rate wage tax of 25%. Events that are limited to a specific group of employees – for example management-only events – can no longer be taxed at the reduced flat rate of 25%.
Companies should review their concepts for company events and incentives, and ensure that the tax treatment of such events complies with the new rules going forward.
2. Commuting Allowance and Adjustment of the Income Tax Tariff
Since 2026, a uniform commuting allowance (“Entfernungspauschale”) of EUR 0.38 per kilometre of one-way distance has applied – starting from the very first kilometre. The previous tiered system has been abolished. This has a direct impact on employees’ deductible work-related expenses as well as on the tax treatment of employer subsidies for commuting between home and the employee’s first place of work (including the option of 15% flat-rate taxation).
In addition, the German income tax tariff was adjusted as of 1 January 2026 by the “Steuerfortentwicklungsgesetz”. The basic personal allowance and the key tariff thresholds were increased, which has changed the amounts of wage tax withheld from salaries. Child allowance and child benefit were also increased at the beginning of 2026.
Employers should ensure that their payroll systems correctly reflect the new allowances, thresholds and tariff parameters so that payroll accounting in 2026 is accurate.
3. “Active Pension”: Continued Employment of Older Employees
To encourage employment beyond the statutory retirement age, the 2025 Tax Amendment Act (“Steueränderungsgesetz 2025”) introduced new tax incentives from 2026 onwards. The core element is the so-called “active pension” (“Aktivrente”): working pensioners may earn up to EUR 2,000 per month tax-free from 1 January 2026.
The intention is to make continued employment of experienced professionals more attractive for companies and to significantly improve additional earning opportunities for retirees. The specific tax and social security treatment of these additional earnings must be examined carefully in each individual case.
Companies that already employ pensioners or plan to do so should review the applicable labour, tax and social security rules and align their contractual arrangements (e.g. working time models, remuneration, fixed-term contracts) accordingly.
4. Social Security Thresholds 2026
New social security thresholds have applied since 1 January 2026. In particular, the contribution ceilings in health, long-term care, pension and unemployment insurance, as well as the annual earnings threshold for compulsory health insurance (“Jahresarbeitsentgeltgrenze”), have been adjusted.
These changes in social security law for 2026 affect both the amount of contributions and the assessment of insurance and exemption situations, and must be taken into account for all payroll periods in 2026.
Employers should ensure that the current thresholds are correctly implemented in their payroll systems and check whether the insurance status of individual employees has changed, for example with regard to switching into or out of private health insurance.
5. Organisation and Compliance: New Requirements
Rules on Combating Undeclared Work
From 1 January 2026, the requirements regarding the fight against undeclared work and illegal employment are intended to be further tightened and existing reporting obligations to be clarified. The legal basis is the Act on the Modernisation and Digitalisation of Combating Undeclared Work (“Gesetz zur Modernisierung und Digitalisierung der Schwarzarbeitsbekämpfung”). Sectors considered particularly high-risk include, for example, construction, hospitality and logistics.
Companies should analyse whether they are affected by additional reporting or documentation obligations and adapt their internal processes in HR administration and time recording accordingly. Depending on the sector, internal guidelines and training for managers and HR staff may also be advisable.
Retention of Digital Business Records under GoBD
The proper retention of digital business records is increasingly in the focus of tax audits. Business emails relating to contracts, invoices or tax-relevant transactions qualify as records that must be retained under the German GoBD principles. They must be archived completely, tamper-proof and within the statutory retention periods.
Companies should critically review their archiving and access processes. In particular, email archiving, document management and authorisation concepts should be GoBD-compliant and properly documented.
Our Conclusion: Keep an Eye on the 2026 Tax Changes
The tax changes for 2026 affect payroll, HR policy and compliance in equal measure. Companies should ensure that
- payroll and HR systems are up to date,
- concepts for company events and incentives comply with the new wage tax rules,
- internal HR, accounting and compliance processes reflect the amended reporting, documentation and retention requirements, and
- the opportunities offered by the “active pension” are considered in workforce planning for older employees.
If you would like to understand what the 2026 tax changes mean specifically for your company or need support with implementation, we will be happy to assist you personally.
