When the state taxes the family: The end of joint taxation for married couples and the abolition of free co-insurance

### Double shock for married couples: What the end of joint tax assessment and co-insurance really costs ### End of free co-insurance? Why millions of married couples will soon face new costs ### SPD plans abolition: Who will soon pay significantly more with joint tax assessment – ​​and who will be spared ###

Family model under attack: Why the state wants to collect from sole earners

The debate surrounding the taxation and financial burden on families in Germany has reached a new peak. Two cornerstones of state family support are under scrutiny: The Social Democratic Party (SPD) is pushing for the abolition of income splitting for newly married couples, while simultaneously discussing the end of free co-insurance for spouses in statutory health insurance. Proponents praise the plans as a long-overdue modernization intended to free women from the part-time trap and counteract the acute shortage of skilled workers. But for millions of households, this is about very real survival. The combination of both reforms could mean monthly net losses in the high hundreds of euros for many married couples, especially those in traditional single-earner models. Is this initiative a necessary step towards greater fairness in the labor market – or is it simply a hidden tax increase of billions at the expense of the middle class? An in-depth analysis of the plans, the specific figures, and the far-reaching social consequences.

Related to this:

• Domestic potential to combat skills shortages: Can unemployed people over 50 and women in mini-jobs make labor migration unnecessary?

Tax policy as social policy — or: Who pays the price for the SPD's reform agenda?

The reform plans do not affect all married couples equally. Existing marriages will be completely spared, as the SPD explicitly provides for grandfathering rights regarding income splitting for these couples. Dual-income married couples with nearly equal incomes will also not be affected, since their benefit from income splitting is already minimal or nonexistent. Exceptions to the free co-insurance will apply to households with children under six and to couples caring for relatives. Dual-income married couples with equal incomes could even be favored, as a reform would structurally equalize them for tax purposes compared to single-income married couples—and according to the Rockwool study, families with many children would benefit, provided the freed-up funds are consistently redirected towards increased child benefits, more affordable childcare places, and higher parental leave payments. The couples who would benefit most are those who both already work full-time and have no income disparity—precisely those who hardly use income splitting today.

This is precisely the most socially explosive contradiction in the entire reform debate. Income splitting doesn't benefit top earners, but rather middle-income households where one partner works part-time or not at all due to childcare, eldercare, or simply a lack of childcare infrastructure. These couples—for example, a part-time nurse with a full-time truck driver, or a mother with a mini-job and a tradesman as the sole breadwinner—are hit hardest by the double effect of the abolition of income splitting and the insurance allowance, even though they are by no means part of the upper class. Top earners, on the other hand, have significantly more financial reserves to absorb the loss and can mitigate tax disadvantages through other strategies. The reform thus disproportionately burdens precisely those lower-income, single-earner, and part-time households that cannot afford expensive childcare and are therefore structurally dependent on an asymmetrical division of labor—a result that directly contradicts the SPD's social commitment.

A tax privilege with a long history

Joint taxation of married couples has been part of German income tax law since 1958. Its introduction was not a political decision, but a direct consequence of a ruling by the Federal Constitutional Court on February 21, 1957, which declared the then-common joint taxation without splitting unconstitutional. The court found that the increased tax burden on married couples, both of whom were employed, violated the principle of equal treatment and the protection of marriage and family under the Basic Law. The legislature subsequently created the splitting procedure as a constitutionally compliant instrument for joint assessment.

The technical workings of joint taxation for married couples are clear, but its distributional effects are complex: Both incomes are added together, the sum is halved, the tax rate is applied to each half, and the resulting tax liability is doubled. Through this method, couples benefit considerably from the progressive tax system when their incomes differ significantly. The greater the income disparity and the higher the absolute earnings, the greater the tax advantage. Joint taxation thus effectively becomes an instrument of tax redistribution in favor of married couples with disparate incomes—and that is precisely its purpose and its justification within the German tax system.

How splitting works — and who benefits from it

To understand the concrete implications of the planned abolition, one must first know which households benefit and to what extent. Income splitting is most advantageous when one partner has no income or a very low income. For a single-earner married couple with an annual income of €100,000, the benefit of income splitting amounts to several thousand euros per year. With increasing total income and a growing income gap, the benefit increases disproportionately—for top earners with €560,000 as the sole earner, the annual net benefit from income splitting can be around €21,000.

For dual-income married couples with different incomes, the amounts are smaller, but still noticeable. For a couple with annual incomes of €50,000 and €25,000, the monthly net benefit amounts to around €45 (€540 annually). With an income difference of €70,000 and €25,000, it's already €146 per month, or €1,752 per year. If one partner earns €100,000 and the other €25,000, the splitting benefit totals €275 per month or €3,298 annually. The tax impact of splitting is therefore by no means marginal, even for typical average-income households with structurally different incomes—for example, due to part-time work after parental leave.

The SPD's political initiative — background and timetable

In the spring of 2024, SPD party leader and Federal Finance Minister Lars Klingbeil once again publicly announced the SPD's plans for income tax reform. As part of a planned tax reform, Klingbeil is pushing to abolish the current income splitting system for marriages contracted in the future. The SPD parliamentary group emphasized that existing marriages should be protected—the splitting would therefore only be eliminated for new marriages. Deputy SPD parliamentary group leader Wiebke Esdar advocated for a reform to be implemented by the summer of 2026.

The SPD primarily justifies its opposition with labor market policy arguments: They claim that income splitting creates perverse incentives, traps women in part-time work, and reinforces outdated gender roles. Labor market experts argue that a reform could create tens of thousands of full-time jobs. Indeed, the German Institute for Economic Research (DIW), commissioned by the Bertelsmann Foundation, has determined that a reform of the joint tax assessment for married couples could create up to 175,000 additional full-time jobs for women aged 45 and over alone. However, the proposal is controversial in domestic politics: The Christian Social Union (CSU) categorically rejects it. Markus Söder described it as a hidden tax increase and a slap in the face to high-achieving members of the middle class. Parts of the Christian Democratic Union (CDU), including Federal Minister for Women Karin Prien, have expressed openness to reform.

The second reform front: End of free co-insurance

Parallel to the income splitting dispute, the German government is discussing abolishing the free co-insurance of spouses in statutory health and long-term care insurance. Under current law, spouses who are not employed or only marginally employed are co-insured in the statutory health insurance system without having to pay their own contributions—a system that has been considered a core element of Germany's solidarity-based insurance system for decades. According to reports in the Handelsblatt newspaper, citing coalition sources, the government plans to end this mechanism and instead introduce a minimum contribution of around €225 per month—divided into €200 for health insurance and €25 for long-term care insurance.

According to the German statutory health insurance (GKV), this change would affect approximately 2.46 to 3 million adult spouses and partners. Exceptions would only apply to households with children under six or dependent relatives requiring care. A monthly contribution of €225 for approximately 2.46 million affected individuals would theoretically generate additional revenue of €6.64 billion annually. The German Family Association has already warned of a massive additional financial burden for millions of families. At the time of this report, a final political decision was still pending, as the report of an expert commission appointed by Health Minister Nina Warken (CDU) was to be awaited first.

The concrete figures: What married couples actually lose

The combination of the abolition of income splitting for married couples and the introduction of the insurance allowance results in significant monthly net losses for various types of households, the overall impact of which has rarely been clearly communicated.

For dual-income married couples—that is, households where both partners are regularly employed and neither partner needs to be co-insured—the losses arise solely from the elimination of the splitting advantage. With an income difference of €70,000 to €25,000, this amounts to a net loss of €146 per month or €1,752 per year. For a couple with €100,000 to €25,000, the annual net loss rises to €3,298. These amounts may seem manageable at first glance, but they must be considered in light of the fact that, according to OECD data, Germany already ranks among the countries with the second-highest tax and social security burden worldwide.

The impact is considerably more dramatic for single-earner married couples or households with one regular job and one mini-job, where the spouse has previously been covered by their own insurance free of charge. In these cases, the losses from both reforms are cumulative. Based on a monthly insurance premium of €225 and an assumed average tax rate of 25 percent, the introduction of the flat-rate insurance allowance alone results in an effective net loss of approximately €2,000 annually. Combined with the elimination of the splitting advantage, this leads to the following total losses for such households: A married couple with a single earner income of €50,000 will lose a net loss of €571 per month or €6,848 per year. At €70,000, the loss is €744 per month or €8,924 per year, and at €100,000, the annual net loss amounts to €981 per month or €11,768 per year. The hardest hit are top earning households: With an income of 560,000 euros, the net loss due to the elimination of income splitting alone can amount to around 21,000 euros annually or 1,750 euros monthly.

Our EU and German expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus areas: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More information here:

• Expert Business Hub

A thematic hub offering insights and expertise:

• Knowledge platform covering global and regional economies, innovation and industry-specific trends
• A collection of analyses, insights, and background information from our key areas of focus
• A place for expertise and information on current developments in business and technology
• A hub for companies seeking information on markets, digitalization, and industry innovations

Structural impact: The part-time trap and its causes

The real economic and socio-political criticism of joint taxation for married couples is more subtle than the debate about absolute euro amounts. The core argument of reform proponents is that the system structurally contributes to married women remaining in part-time work or not employed at all, because the marginal tax rate on their own income is artificially increased by the joint tax procedure. If the earning partner is already taxed in a higher tax bracket, the additional earnings of the partner are taxed at a correspondingly higher marginal rate—effectively reducing the incentive to increase working hours.

A study by the DIW (German Institute for Economic Research) commissioned by the Bertelsmann Foundation has empirically confirmed this effect: Almost half of all married women aged 45 to 66 who work part-time do not increase their working hours because it is not financially worthwhile. Even among housewives who have devoted themselves exclusively to their families since marriage, almost half stated that employment would not be financially viable for them. This finding has real economic relevance: A 1.5 percentage point increase in the employment rate and a 3 percent increase in working hours could theoretically create 175,000 additional full-time jobs. Given the massive shortage of skilled workers in Germany, this argument should not be underestimated.

Nevertheless, the debate is not one-dimensional. There are also fact-based counterarguments: According to an analysis in the business journal Wirtschaftsdienst, the income splitting system serves horizontal tax justice—it taxes married couples with the same total income equally, regardless of how the income is distributed between the partners. Abolishing income splitting would de facto penalize couples who have consciously chosen a division of labor with one partner as the primary earner and the other as a caregiver—a lifestyle that remains widespread in society and is protected by fundamental rights.

Related to this:

• Skilled worker shortage? The mini-job trap as a systemic brake on the German economy

Economic classification: Germany as a high-tax country

To properly assess the scope of the planned reforms, the overall context of Germany's tax and social security burden must be considered. According to OECD data, Germany is already among the most heavily taxed countries internationally: A married couple with two children, where one partner works full-time and the other part-time, pays an average of 40.8 percent of their income in taxes and social security contributions—only Belgium, at 45.5 percent, has a higher rate. The OECD average is 29.4 percent. The situation is even more extreme for single people: At 47.8 percent, Germany ranks second among all 38 OECD countries.

Against this backdrop, it seems remarkable that the planned measures would further and significantly reduce the net incomes of middle- and high-income married couples—without any simultaneous compensation through tax cuts in other areas or an increase in family benefits. The SPD stated in its platform that the vast majority of households with children would be financially better off with the basic child allowance and that there would be no losses for average earners without children. However, this statement stands in considerable contradiction to the concrete calculations of net losses, which already amount to almost €1,800 per year for an average-earning married couple with annual incomes of €70,000 and €25,000 respectively.

Related to this:

• The cause is an unfair tax system and bureaucracy: no initiative! We are not motivated to work because performance doesn't pay off

Family policy impact: Desire for children under pressure

The family policy dimension of the reform plans is perhaps the most consequential. Young married couples who are planning children or already have children make their decisions about employment and the division of family labor within a narrow financial framework. Rising costs for housing, childcare, and living expenses have already put increasing pressure on family planning in Germany in recent years. A noticeable decrease in net household income of 500 to almost 1,000 euros per month due to the combination of both reform measures could make the decision against having a child or for postponing family planning seem rational to young couples.

Interestingly, the scientific consensus on this issue is not clear-cut. A study by the Rockwool Foundation argues that abolishing income splitting could even increase the birth rate—but only if tax benefits were linked to children rather than marriage. According to the study, the birth rate could rise by 5.7 percent if tax benefits were consistently tied to children, the maximum parental leave allowance were doubled, childcare fees were reduced by around ten percent, and child benefits were increased. Crucially, this effect on the birth rate is contingent on a comprehensive compensation package and will not occur automatically simply by abolishing income splitting. Without equivalent compensation in child-related benefits, the demographic impact of such a reform would tend to be negative.

Grandfathering and transitional arrangements: Who is really affected?

A key political argument of the SPD is that existing marriages should be protected and the reform would only apply to future marriages. This limitation significantly reduces the political explosiveness but hardly alters the long-term social impact. Young couples who marry in the future plan their lives under the assumption of existing legal certainty—therefore, abolishing income splitting for new marriages would affect precisely the group of people who are currently in the process of starting a family.

The situation is different with regard to free co-insurance: Reports from coalition circles do not indicate any protection of existing rights. Those who are currently co-insured free of charge would have to pay a monthly contribution of €225 in the event of a reform—with the exception of households with children under six or dependent relatives requiring care. This means that millions of households in which one partner is not employed due to parental leave, caregiving, or personal consideration would face immediate and immediate additional costs of €2,700 per year without a transition period.

Critical appraisal: The need for reform versus the consequences of reform

It would be one-sided to portray the reform debate solely as an attack on families. There are legitimate and fact-based arguments for modernizing the tax system. Joint taxation of married couples in its current form was introduced in 1958 in a society where the single-earner family was the dominant lifestyle and both partners were employed in only one out of seven marriages. Social reality has fundamentally changed: dual-earner households are now the majority, women have higher levels of education than ever before, and the labor market is suffering from an acute shortage of skilled workers. In this context, a critical review of the tax framework is entirely justifiable.

Furthermore, the current income splitting system actually promotes structural inequalities: The greatest benefits accrue to single-earner married couples with very high incomes, while families with similar total incomes but an equal distribution between both partners benefit significantly less. This is not a left-wing ideological interpretation, but a mathematical finding: Income splitting has a regressive effect on the equal distribution of income within marriages by favoring a model that makes one person financially dependent on the other.

The crucial question, however, is not whether the existing system needs reform, but how such reform should be designed and whether it will be fairly compensated. Abolishing income splitting without simultaneous tax relief in other areas or strengthening family benefits will result in a net loss for the affected households. If, at the same time, free co-insurance is abolished without the additional revenue being invested in the healthcare system or family support, millions of households will lose twice over—and the state will ultimately gain additional revenue of potentially well over ten billion euros annually, without any clear earmarking of these funds.

Societal signaling effect: What tax law says about values

Tax law is never value-neutral. The way a state taxes the economic unit of the family sends a socio-political signal about which lifestyles are promoted and which are disadvantaged. The current system of income splitting rewards a couple's decision to distribute paid work unequally—whether for childcare, eldercare, part-time work, or personal conviction. Abolishing it sends the signal that the state favors the model of both partners working full-time and considers other models not worthy of tax incentives.

This presents a fundamental tension: On the one hand, it is a legitimate state objective to eliminate perverse incentives that unintentionally push women into financially dependent part-time jobs. On the other hand, the enforced equal tax treatment of all married couples infringes upon the constitutionally protected right to freely shape one's family life. Couples who have consciously chosen a division of labor with one partner as the main breadwinner and the other as the primary caregiver would be penalized by the reform—even if this decision is based on personal conviction and not on structural coercion.

Reform, yes, but with moderation and compensation

The planned abolition of joint taxation for newly married couples and the simultaneous introduction of a flat-rate insurance allowance for spouses who were previously covered free of charge represent, in their combined financial impact, one of the largest shifts in the tax burden that married couples would experience in the history of the Federal Republic of Germany. The monthly net losses of €500 to almost €1,000 for single-earner households with middle incomes are no small matter in a country that is already among the most heavily taxed jurisdictions in the OECD.

The need for reform exists and is well-founded on scientific grounds. However, a reform that merely eliminates existing tax breaks without simultaneously reducing the overall burden on families or substantially expanding child-related benefits will miss its family policy objective. Only when tax advantages are consistently linked to children rather than marriage, and a well-thought-out compensation package for families during the child-rearing phase is implemented, can the current reform debate result in a genuine modernization of German family tax law—and not just a hidden increase in the tax burden on the middle class.

The research provides several clearly identifiable alternatives. Here is a concise answer:

The real alternative would not be a radical overhaul, but a well-thought-out system change in three steps. The Finance Ministry itself outlined an initial proposal in early April 2026: the so-called fictitious real splitting, in which the higher-earning partner can deduct an amount equal to the maximum tax-free maintenance allowance of €13,805 from their own taxable income, which the other partner then taxes at their lower rate. This model protects the subsistence level of both partners, reduces the unjustified extreme advantages in cases of very high income disparities, and is constitutional. The German Institute for Economic Research (DIW) has calculated that real splitting with a transfer amount equal to the basic tax allowance would generate around ten billion euros in additional revenue annually—primarily from the top two income deciles, and thus not from average earners.

The second step would be a consistent redirection of these funds to child-related benefits: higher child benefits, an automatic child supplement without application, a child tax allowance in social security, and more affordable childcare expansion. Thirdly, following the French model, a genuine family income splitting system could be introduced, with the splitting divisor tiered according to the number of children rather than marital status—thus rewarding children, not marriage, through taxation. This would not be an ideologically driven abolition, but a targeted modernization: less of an advantage for high-income, childless couples, more relief for families with children—regardless of marital status.