HR-Glossar

Kinderfreibetrag (child tax allowance)

Why the German child allowance does not reduce wage tax, what the ELStAM counter actually affects and how it is weighed against child benefit.

1. What is Kinderfreibetrag (child tax allowance)?

The Kinderfreibetrag is an amount that reduces taxable income in order to leave a child's subsistence minimum untaxed. It consists of two parts: the allowance for the material subsistence minimum and the allowance for care, upbringing and education. The legal basis is Section 32(6) EStG.

For payroll what matters is what it does not do: the child allowance counter held in the ELStAM does not reduce wage tax. In the wage tax deduction it affects only the surcharge taxes – the solidarity surcharge and church tax – because Section 51a EStG corrects their tax base by the child allowances.

The actual relief arises only in the income tax assessment, and even there not automatically: Section 31 EStG requires a comparison test. The tax office compares the effect of the allowances against the child benefit already paid and grants whichever is more favourable. There is no having both.

2. Origin and development

Behind the construction lies a constitutional requirement: a child's subsistence minimum may not be taxed. The legislature can meet that in two ways – through an allowance in tax law, or through a payment outside it.

Germany does both and links them. Child benefit is paid continuously, because it arrives where it is needed: monthly, regardless of income. The allowance takes over where child benefit does not achieve the exemption the constitution requires – that is, at higher incomes, where the tax saved by the allowance exceeds the child benefit. The comparison test joins the two routes.

That the counter is nevertheless visible in the wage tax deduction has a narrow reason: for the solidarity surcharge and church tax the allowances are always applied, not only after the comparison test. That is why the counter sits in the ELStAM – and why employees regularly wonder that a child does not reduce their wage tax.

3. Core principles and how it works

No effect on wage tax

In the running wage tax deduction the child allowance does not reduce wage tax. Anyone looking for the relief there is looking in the wrong place.

Effect on solidarity surcharge and church tax

Under Section 51a EStG a notional wage tax is calculated for the surcharge taxes taking the child allowances into account. Only there does the counter have a monthly effect.

The comparison test comes with the assessment

Section 31 EStG compares the tax effect of the allowances against the child benefit paid. Where the allowance is more favourable it is granted and the child benefit set against it. The comparison is made of the tax office's own motion.

The counter reflects the attribution

The allowance is in principle due to both parents in equal halves; the counter shows this. A transfer to one parent is possible on the conditions of Section 32 EStG and changes the counter.

Children over 18 count only under conditions

After the eighteenth birthday the entitlement continues only where one of the conditions named in Section 32 EStG applies – training, for instance. The counter does not then change automatically; the notification runs through the tax office.

4. Who is Kinderfreibetrag (child tax allowance) relevant for?

- Employees with children – for them, why net pay hardly changes is the most frequent payroll query. - Payroll – they must be able to explain the counter's limited effect without giving tax advice. - Employees liable to church tax – for them the counter has a more noticeable effect, because church tax is affected. - Separated parents – for them the attribution determines the counter and with it the monthly effect. - HR – they receive notifications of births but cannot change the counter themselves.

5. How it differs from related terms

- Child allowance and child benefit – two routes to the same constitutional goal. The comparison test under Section 31 EStG decides which applies; there is no having both. - Child allowance and the single parent relief amount – the relief amount is a separate benefit and works directly on wage tax through tax class II. It is often confused with the child allowance because both attach to children. - Child allowance and an allowance under Section 39a EStG – a wage tax allowance applied for at the tax office reduces wage tax directly. The child allowance does not. - Child allowance and childcare costs – childcare costs are deductible as special expenses and work in addition; they are not part of the counter.

6. Variants and adaptations

Attribution is the point on which cases differ:

- Parents living together – half a counter per child each, the standard case. - Single parents – often a full counter after transfer, and as a rule tax class II with the single parent relief amount as well. - Separated parents – transferring the half allowance to one parent is possible on the conditions of Section 32 EStG, for instance where maintenance obligations are breached. It runs through the tax office. - Children over 18 – continuation only where there is training or another ground named in Section 32 EStG; the evidence goes to the family benefits office and the tax office.

7. Advantages and challenges

Advantages

  • Leaves a child's subsistence minimum untaxed, as the constitution requires
  • The comparison test happens automatically – no application is needed
  • At higher incomes it works harder than child benefit
  • It reduces the solidarity surcharge and church tax month by month
  • The attribution can be shaped where parents live apart

Challenges

  • No effect on wage tax – the most common disappointment on the first payslip after a birth
  • The relief arrives only with the following year's tax assessment
  • The employer cannot change the counter; every correction runs through the tax office
  • For children over 18 the entitlement ends without the payroll system noticing
  • The interplay with child benefit, tax class II and childcare costs is hard to see through

8. Best practices for implementation

Explain the effect when the birth is notified

"The child is on the payslip, but my net pay has hardly changed" is a fair question. A short note – effect only on surcharge taxes, relief through the tax return – saves the query and the suspicion behind it.

Point employees to the tax office rather than correcting it yourself

The counter comes from the ELStAM. The employee applies for changes at the tax office; intervening in payroll is neither possible nor permitted.

Retrieve the change list actively after a birth

The new counter arrives through the ELStAM change list. Fail to retrieve it and the surcharge taxes go on being calculated without the child.

Remember the cut-off for children over 18

The counter changes through the tax office, not by itself. A note to employees prevents later back-claims.

9. Tips for employers and employees

For employers

  • **The counter affects only the surcharge taxes** – Section 51a EStG, not wage tax
  • **Changes run through the tax office** – the employer cannot set the counter
  • **Check the ELStAM change list after a birth** – otherwise the old counter stands
  • **Do not confuse tax class II with the child allowance** – it works directly on wage tax

For employees

  • **Your net pay will hardly change** – the relief comes through the tax return, not the payslip
  • **File a tax return** – without one the comparison test does not happen
  • **Child benefit and the allowance are mutually exclusive** – the tax office grants the more favourable one
  • **A single parent? Check tax class II** – the relief amount works immediately in the deduction

10. Conclusion

The child allowance is the term with the widest gap between expectation and effect. In the wage tax deduction it does not reduce wage tax – under Section 51a EStG it affects the solidarity surcharge and church tax alone. The actual relief arises in the assessment, and even there only so far as the comparison test under Section 31 EStG shows the allowance to be more favourable than child benefit.

For practice this is above all a communication task. Anyone expecting a noticeably higher net after a birth will be disappointed – and will ask HR. One sentence at the right moment explains what the payslip cannot show. The counter can in any case be changed only through the tax office; the employer applies what the ELStAM deliver, which is worth knowing for any shared service centre used to maintaining such data itself.

Sources

Related terms

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