Günstigerprüfung: when the German tax office picks the better option

The word appears in several places in German tax law, always for the same idea: the tax office works out two versions and applies the one that produces less tax. Three cases matter for personal finances. Status: October 2026, amounts for 2026.

1. Investment income: your rate instead of the flat tax

Investment income normally pays the flat 25 % Abgeltungsteuer. On request, the tax office adds it to your other income and taxes everything at the normal progressive rates instead, but only if that lowers your income tax including surcharges (§ 32d (6) EStG). The request always covers all investment income of the year, and for a married couple both partners’ income. You make it in Anlage KAP of your tax return.

It helps when your personal tax rate is below 25 %: as a student, in a sabbatical year without salary or early in retirement. (Benefits such as Elterngeld can push the rate up again through the Progressionsvorbehalt.)

Example: Jonas is in his first year after leaving his job. His taxable income without investment income is €12,000, below the €12,348 basic allowance. He has €4,000 of investment income, €3,000 after the saver’s allowance. His bank withheld €750 tax and €41.25 surcharge. With the Günstigerprüfung his taxable income is €15,000, which costs €435 under the 2026 schedule. No surcharge is due because the tax is below the threshold. Jonas gets €356.25 back.

2. Kindergeld or child allowance

In 2026 the family office pays €259 Kindergeld per child per month (§ 66 EStG), €3,108 a year. The alternative is the child allowances: €3,414 plus €1,464 per parent, €9,756 for parents assessed jointly (§ 32 (6) EStG). The tax office checks automatically which is worth more. If the allowance saves more tax than the Kindergeld, it deducts the allowance and adds the Kindergeld to your tax bill (§ 31 EStG).

Example: a married couple with one child has €150,000 taxable income. Under the 2026 joint schedule that is €40,728 income tax, or €36,630 with the allowances. The allowance saves €4,098 against €3,108 of Kindergeld, so the tax office applies it: €990 more than Kindergeld alone (before surcharge and church tax). Worked through with the 2026 schedule, the switch for one child comes at about €86,100 of joint taxable income; below that, Kindergeld is the better option.

For 2027 the government draft of the Einkommensteuerreformgesetz 2027 proposes €267 Kindergeld and a €3,564 child allowance per parent. It has not been passed yet.

3. Riester: subsidy or deduction

Riester contributions plus the state subsidy can be deducted up to €2,100 a year (§ 10a (1) EStG). The tax office checks by itself whether the deduction is worth more than the subsidy. If so, it adds the subsidy to your tax; the subsidy stays in the contract and only the extra saving reaches you (§ 10a (2) EStG). With the reform of state-subsidised private pensions, new contracts from 2027 have a new limit of €1,800 of contributions plus the subsidy. The comparison stays.

Common misunderstandings

• For investment income the comparison does not happen automatically; you have to request it.
• What matters is the extra tax the investment income triggers, not your average rate. Under the 2026 schedule, a single person’s marginal rate passes 25 % at about €20,800 of taxable income; above that the request rarely helps.
• You do not get Kindergeld on top of the allowance; it is netted.

In your plan

For investment income the comparison can help in years with little other income, such as between leaving work and the first pension payment. The German salary calculator shows your tax as an employee, and the guide the tax plan explains how to plan such years. Its counterpart is the Progressionsvorbehalt, which works in the opposite direction.