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Update: Limited exemption from payroll taxes for vouchers and prepaid cards

Non-cash benefits up to EUR 44 per month remain free of wage taxes and social security in Germany under certain conditions. Also vouchers and prepaid cards issued to employees might qualify for the EUR 44 exemption limit as preferential benefits in kind. In practice such prepaid cards, for example, were used by the beneficiary employees for private payments largely without restrictions.

According to a draft letter of the Federal Ministry of Finance (BMF), from 1 January 2020, among other things, only a limited number of acceptance locations in Germany for such vouchers will be permitted:

-          Beneficiary vouchers/prepaid cards should only entitle the holder to purchase from a specific retailer, such as a specific department store or Internet retailer.

-          The cards/vouchers may only be accepted in Germany.

-          Beneficiary vouchers and cash cards may only be issued by employers in addition to the salary already owed. Salary conversion is not possible.

Please note the following in this context:

-          In case of doubt, the use of the EUR 44 exemption limit for non-cash benefits for additional vouchers/prepaid cards is associated with considerable liability risks for employers. Smallest benefits in kind, which are granted in addition to the vouchers (usually unrecognized), can lead to tax and social security liability of the entire benefits when audited. In the case of so-called mini job employments, the effects can be dramatic if the total monthly income threshold of EUR 450 is exceeded.

-          Employers should inform both the tax office and the social security institutions in an informal letter in the context of the wage tax returns, either before or at the latest at the same time as the relevant data are transmitted to their employees, that the company uses non-cash benefits cards and thus takes advantage of the benefits under Section 8 (2) sentence 11 or Section 37b German Income Tax Law (“EStG”). In the case of wage tax registrations that have already been made without these explanations, it is advisable to inform the respective tax office and the social insurance institutions immediately.

All in all, the tightened legal restrictions make it difficult to make use of the EUR 44 exemption limit because of the associated risks for employers. In any case, the wage tax or social security treatment of vouchers, prepaid cards and similar benefits should be reviewed immediately in order to correct them if necessary.

Please do not hesitate to contact us in case of any questions.

Björn Christian Gerow

Steuerberater

Fachberater IStR

b.c.gerow@egsz.de

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