Is Elterngeld (parental leave pay) taxed in Germany?

Elterngeld (parental benefit) is paid by the state to parents who take time off work to care for a newborn. The basic Elterngeld replaces 65%-67% of your net salary up to a maximum of €1,800 per month for up to 14 months. The minimum is €300 per month.

Elterngeld itself is tax-free income — it is not subject to income tax or social security contributions. However, it is subject to the Progressionsvorbehalt (progression clause). This means Elterngeld is added to your other taxable income to determine the tax rate applied to that other income. Your Elterngeld amount is not itself taxed, but it pushes the rate on the rest of your income higher.

For example, if you earned €30,000 in salary and received €10,000 in Elterngeld, your tax rate is calculated as if you earned €40,000, then applied only to the €30,000 taxable portion. This often results in an unexpected tax bill at year-end for parents who did not adjust their Lohnsteuer class during parental leave. The Finanzamt requires a tax return in years where you receive Progressionsvorbehalt income. Elterngeld is declared on a special line in the return (Anlage Kind and on the income page) but does not appear as taxable income.