Vacation periods are taxed

Monetary benefit: what is in it, how is it taxed?

Employees' income is often supplemented by a variety of benefits in kind - these include privately used company vehicles, free meals, or accommodation available as a benefit in kind. This so-called monetary benefit is almost always taxable. We reveal what counts as a pecuniary advantage, how you can calculate and offset it correctly and what HR managers must absolutely pay attention to in terms of tax.

Easily manage benefits in kind in Personio's digital personnel file (which is also directly linked to the preparatory payroll).

What is meant by a pecuniary benefit?

The pecuniary benefit is a (material) performance by the employer, which he offers the employee in addition to the salary. These can be discounts, a company car, private use of IT equipment or free lunch in the canteen. All of these amenities are so-called pecuniary benefits for the employee.

The monetary benefit is always the amount that the employee would have to invest in a contribution in kind if he financed it himself.

According to Section 8 of the Income Tax Act, the pecuniary benefit associated with a payment in kind is always considered income and therefore income subject to tax and social insurance.

A monetary benefit in payroll accounting

At first glance, the correct calculation of the monetary benefit seems to be a challenge. However, it seems more complicated than it actually is.

The most important basic rules for pecuniary benefits:

  • Benefits in kind up to a monthly value of 44 euros are tax-free.
  • The monetary benefit for the company car is based on the one-percent rule or on the driver's log.
  • Employee discounts of up to four percent of the discount, up to a maximum of 1,080 euros per year, are tax-free.

Monetary benefit and allowance: which benefits in kind must be taken into account?

Every pecuniary benefit has an allowance. How high this exemption is depends on the benefit in kind.

Bonus miles

Employees who travel a lot on business and collect bonus miles can use these themselves up to an exemption limit of 1,080 euros per year. As an employer, however, you can insist on using the bonus miles for business purposes.

Staff discounts

Employee discounts are also subject to an exemption of 1,080 euros. If, despite the employee discount, the final amount is higher than the tax-exempt amount, it is a taxable pecuniary benefit.

Example: You are the owner of an exclusive kitchen studio and your employee buys a large kitchen at the normal new price of 13,000 euros. The staff discount is 10%. In this case, the employee receives a monetary benefit totaling 1,300 euros. However, this amount exceeds the annual pecuniary benefit exemption of 1,080 euros. Therefore, the difference between 1,080 euros and 1,300 euros is assessed as a taxable pecuniary benefit.

Important: Every pecuniary benefit above the annual tax exemption of 1,080 euros is subject to tax.

Particular caution is required with discounts from third-party companies. It is essential to ensure that the employee does not provide any service for the other company in the context of the employment relationship.

With one click: manage benefits in Personio

Simply enter in the digital personnel file which additional benefits in kind your employee will receive. At the push of a button, you can link these services with the preparatory payroll and thus avoid accounting errors.

Example of a group of companies in which the marketing department is active for all affiliated individual companies: In this case, the employees of the marketing department provide a service for the other companies. If these companies now grant staff discounts, it is a consideration. The normal discount turns into a monetary benefit and is subject to tax from the exemption of 1,080 euros.

Benefits in kind up to 44 euros

Benefits in kind up to a value of 44 euros are generally tax-free. Job tickets for local transport for your employees also fall under this remuneration as fuel vouchers or certain goods vouchers.

Health promoting measures

Many companies support the health of their employees by using prophylactic measures such as regular massages or physiotherapy. This benefit in kind is exempt from taxes and social security contributions of up to 500 euros per year. The study on the effectiveness and benefits of occupational prevention by the Health and Work Initiative shows that this investment is also worthwhile for the company.

Childcare allowance

If an employee's child needs to be looked after by someone else at short notice due to illness, the company can cover the costs up to 600 euros. This benefit in kind remains tax-free.

Other allowances are the cost savings for company housing. Here the tax exemption is currently 204 euros. For low-interest loans by the company, savings of up to 2,600 euros are tax-free.

Financial advantage company car

The company car has a high priority in Germany. After all, the owner receives a monetary benefit from the company car.

But how is the monetary benefit for the company car calculated? There are two different options to choose from. You use either the one percent rule or the logbook. Whereby the logbook without automated records causes a lot of effort.

How does the one percent rule work?

With the one percent rule, the employee pays one percent of the gross domestic list price per month in return for private use of the company vehicle. In addition, the employee pays tax on 0.03 percent of the gross domestic list price per kilometer of distance between home and workplace.

This results in an additional income that is added to the salary for purely tax reasons, but is not paid out. The additional amount is only used to correctly calculate the additional tax and social security contributions.

Example calculation:
Income: 3,000 euros gross / month
New price car: 30,000 euros
0.01% of the new price
30,000 x 0.01% = 300 euros

Distance work / place of residence: 50 kilometers
New price x kilometers x 0.0003
30,000 x 50 x 0.0003 = 450 euros

This results in a monetary benefit for the company car in the amount of 750 euros. This amount increases the income arithmetically by 750 euros. Instead of the previous 3,000 euros, he pays taxes of 3,750 euros on the company car.

Monetary benefit calculator checks profitability

The monetary benefit depends on the distance between home and workplace as well as the purchase price for the company car. The more both factors increase, the less there is a monetary benefit for the employee. It is therefore essential to compare income and expense with the cost of owning a vehicle. The result provides companies and employees with a meaningful decision-making aid for the accounting mode.

The distribution of company cars according to car brands among the specialists and executives is particularly interesting. The statistics clearly show the investment area in which companies are moving when it comes to company vehicles.

Because especially for employees who prefer to use the company car for business purposes and only undertake a few private trips, the logbook is usually worthwhile from a tax point of view.

When is a pecuniary benefit tax-free?

A pecuniary benefit is always tax-free if the contribution in kind primarily serves the interests of the company. In the case of the assumption of costs for the truck driver's license, the company's own interest outweighs the same as in professional training, which is becoming more and more important from the perspective of personnel marketing.

A common practice in many companies is the issue of meal vouchers or heavily discounted lunches in their own canteen. In tax law, so-called benefits in kind were set. For example, these values ​​define a maximum value of 3.23 euros for lunch or dinner (as of 2018). If you issue food vouchers or food vouchers to your employees, their value may be a maximum of EUR 3.10 higher than the tax-stipulated amount of EUR 3.23.

Although this is a monetary benefit, the 3.10 euros are tax-free for the employee. The difference of 3.23 euros is subject to normal tax liability. However, employers can choose a flat rate taxation of the non-cash benefits of 25 percent.

If you as a company provide fruit, mineral water, fruit juices and coffee free of charge, this is not a monetary benefit.

A particularly important tax-free pecuniary benefit is that the company pays for childcare. If the company accepts an unlimited grant in addition to the salary, it is a tax and social security-free pecuniary benefit.

A monetary benefit is more than just a benefit in kind

The monetary benefits that many companies offer their employees cause little effort in the accounting process. These processes are automated, primarily due to the constant digitization of companies. This means that remuneration in kind represents a clear win-win situation for companies and employees. Both benefit from these additional components of the wage. For the company in particular, remuneration in kind for employees is an important argument in employer branding.

Disclaimer:

We draw your attention to the fact that our website is for non-binding information purposes only and does not represent legal advice in the true sense of the word. The content of this offer cannot and should not replace individual and binding legal advice that addresses your specific situation. In this respect, all information provided is without guarantee of correctness and completeness.

The contents of our website - especially the legal articles - are researched with the greatest care. Nevertheless, the provider cannot accept any liability for the correctness, completeness and topicality of the information provided. In particular, the information is of a general nature and does not constitute legal advice in individual cases. Please consult a lawyer to resolve specific legal cases.