Tax-free employee gifts: benefits in kind and salary extras as perks

Non-cash benefits in the form of employee gifts can have a positive effect on employee motivation and strengthen loyalty to the company. Employees should consider how they can make the most of tax-free benefits. Tax-free benefits in kind are attractive salary extras that offer advantages for both employees and employers: both save on social security contributions and employees also save on taxes.

When is an employee gift tax-free?

Employers can give their employees tax-free salary extras in the form of benefits in kind. Instead of a cash payment, employees receive a service or goods. Typical examples of such benefits in kind are vouchers, event tickets, or subsidies for a company bicycle.

How much can tax-free employee gifts cost?

Since 2022, the allowance for tax- and social security-free employee gifts has been €50. Prior to this reform, the exemption limit was €44.

Tip: It is important to note that shipping costs for goods are also considered a benefit to the employee and must be included in the costs accordingly.

Efficient use of employer subsidies can result in higher net income for both employees and employers. Some subsidies must be paid by employees in addition to their wages in order for the benefit to be considered tax-free. However, this does not apply to all employee gifts.

Good to know: Monetary gifts from the boss to employees are considered cash wages and must be taxed accordingly.

What can employers give their employees as tax-free gifts?

Giving employees goods from your own company tax-free

For products and services manufactured by the company itself, there is an employee discount allowance of €1,080 per year (Section 8 (3) EStG). If the allowance is adhered to, social security and income tax do not have to be paid.

Giving tax-free vouchers to employees

Vouchers worth up to €50 can be given to employees tax-free on a monthly basis.

The monthly exemption limit of €50 should not be exceeded. All benefits in kind are added together to calculate the total value. If this value exceeds the exemption limit, income tax and social security contributions are paid on the entire amount. Employees may make additional payments themselves in order to comply with the €50 limit (Section 8 (2) sentence 11 EStG).

Vouchers for employees:

• Vouchers that can be redeemed for goods or services
• Fuel vouchers
• Rechargeable gift cards

Since 2020, such tax-free benefits in kind have been clearly distinguished from taxable cash payments. According to Section 8 (1) sentence 2 EStG, the following are considered cash payments:

• Earmarked cash benefits
• Alternative means of payment to cash in the form of credit or debit cards
• Retrospective reimbursement of expenses
• Other benefits denominated in a monetary amount

An exception is made for vouchers that can only be redeemed for goods or services.

Such vouchers include:

• Rechargeable gift cards
• Shopping center vouchers
• City cards

Gift cards that are given to employees tax-free may not include a payment function. Cash redemption must not be possible, even in the event of an exchange.

In order for vouchers to be given to employees tax-free, employers must grant vouchers in addition to wage payments.

Three different types of voucher cards are permitted as non-cash benefits for employees:

• Vouchers with a limited network: vouchers for retail chains, stores, or regional city cards.
• Limited selection of goods: Vouchers for individual product categories—e.g., fashion, books, or fuel vouchers.
• Vouchers for tax or social purposes: Meal vouchers, vouchers for relaxation activities such as meditation apps.

Tip: Are you unsure whether you can give a specific voucher to employees tax-free? Obtain a ruling from the tax office in advance.

Gifts to employees

For gifts from employers in the form of flowers, wine, or books, the exemption limit is €60 gross.

This exemption limit requires specific occasions, such as an employee's birthday, an employee anniversary, a wedding, the birth of a child, a promotion, a return from parental leave, or after a long illness.

Depending on the occasion, a benefit in kind of up to €60 in addition to the €50 exemption limit may be granted. If several occasions occur in one month, several gifts to employees are also permitted in one month. It does not matter whether employers give their employees goods, merchandise vouchers, or vouchers with a monetary value. Only cash may not be given as a tax-free gift.

Tax-free benefits for sports and health

Both employees and the company benefit from good health and motivation. This is precisely why financial subsidies for gym or sports club memberships are particularly popular benefits. The exemption limit is 50 euros.

Certified health classes can be granted tax- and social security-free up to €600 per year per employee. If the company approves a larger subsidy amount for the employee, only the amount exceeding the exemption limit is taxable.

Job ticket or rail card as a tax-free benefit

A company can grant its employees a tax-free subsidy for traveling to work by public transport. The company can decide for itself whether to provide monthly or annual tickets and offer them free of charge or at a reduced rate.

If the job ticket is provided in addition to the salary, it is considered tax-free.

Tax-free subsidies for company cars or company bicycles

Company cars are considered popular salary extras. If the company car is also used privately, the monetary benefit must be taxed and social security contributions must be paid.

Company bicycles can also be provided to employees free of tax and social security contributions. If employees receive the company bicycle in addition to their salary, the monetary benefit for private use is exempt from tax (Section 3 No. 37 EStG).

However, if the company bicycle is paid for through salary conversion, this is not tax-free. Nevertheless, there are also advantages to this form of financing.

Childcare costs

Subsidies for kindergartens, daycare centers, or childminders for the care of children not yet of school age are tax-free in unlimited amounts. As a condition, these allowances must be paid in addition to wages.

Tax-free allowances for meals

Employees pay an official non-cash benefit value, which is determined annually, so that discounted meals are exempt from tax and social security contributions. A popular example is the company's own canteen.

Employers also have the option of granting their employees meal allowances via restaurant vouchers or meal vouchers.

Computers or cell phones for employees

Company smartphones or laptops may be used tax-free for work and private purposes by agreement.

If employees receive a laptop or cell phone from their employer for private use, the employer pays a flat rate of 25 percent income tax and no social security contributions.

Tax-free employee gifts in 2024: Inflation adjustment bonus of up to €3,000

One-time, tax-free payments from a company to employees are generally not possible. However, in October 2022, the inflation adjustment bonus was approved, allowing companies to transfer up to €3,000 in cash to their employees in addition to their wages, free of tax and social security contributions. This applies until December 31, 2024.

What are the advantages of tax-free employee gifts?

Employee gifts increase both motivation and loyalty among employees towards their employer. In addition, employee benefits and increased employee motivation contribute to a positive image for a company.

Some advantages of tax-free employee gifts at a glance:

• If you comply with the legal requirements, gifts for employees are tax- and social security-free.
• Appropriate employee gifts make employees feel valued, which in turn improves performance.
• Employee benefits contribute to a strong employer brand. Employees convey the positive image of the company to the outside world and motivate top employees to apply as well.