Transit passes, childcare and health: the earmarked employer contributions

An advertising agency in Leipzig pays each of its eight staff 63 € a month towards their local transit pass. In spring a pay rise that was already agreed in the contracts falls due, and the owner simply pours it into a second allowance for the nursery, which she also books as tax-free. The first allowance holds, the second does not. No amount separates them, only one word of the statute: additional.

A catalogue, not a principle

§ 3 EStG is not a general rule under which anything paid for a good cause escapes tax. It is a list. Each number describes a situation, and only what fits that description exactly is left out of the employee's income. Everything else is wages and goes through the ordinary payroll tax deduction.

For payroll this dictates a way of working. You do not start by asking whether a benefit is sensible or socially desirable, but by asking which number carries it. If none does, the best intentions change nothing. If one does, its wording is checked condition by condition before anything is booked as exempt.

This course covers the numbers a small business actually uses: bus and rail travel, nursery places and workplace health in the first module; bicycles, charging power, phones and laptops, and reimbursed expenses in the second. Night and Sunday premiums and the monthly benefit-in-kind threshold belong to the course on the payroll tax return.

Also left aside are the company car, gifts and staff parties, which have a course of their own, and occupational pension contributions under number 63, handled in the course on company pensions. Where a benefit appears there, its rules are read there; this course deals with what remains alongside them.

The word additional and its four tests

Many of the numbers carry the same restriction: the benefit must be provided in addition to the wages owed anyway. What that means is set out once for the whole Act in § 8(4) EStG. The course on the payroll tax return walks through its four conditions one by one; here their common core is enough.

The core is this: the benefit must not be relabelled salary. The employer may not set it off against the agreed pay, and pay may not be cut because of it. A raise already promised for the future may not be converted into it, and if the benefit ends, more cash pay may not flow automatically in its place.

The second sentence of the same provision clears up a common misunderstanding. A benefit stays additional even when the employee has a legal claim to it, for instance under the employment contract, a works agreement, a collective agreement or a statute. Voluntariness is therefore not required, only the absence of any offset against pay.

In the opening example the nursery allowance fails precisely on the third test. The raise had already been agreed, and the allowance takes its place. The transit allowance, by contrast, was never swapped for anything. On the payslip both look identical; what separates them is their history.

The table only records whether the word appears in the wording of each number. Numbers 45 and 50 lack it. That is consistent: private use of a work phone and the refund of an outlay advanced for the business are not benefits anyone could sensibly trade against salary in the first place.

The transit pass: allowance or ticket

Number 15 exempts two arrangements that end up working the same way. Sentence 1 covers allowances, meaning money the employer contributes towards the employee's travel costs. Sentence 2 covers free or discounted use itself, typically a ticket that the business buys and hands on to the employee.

What qualifies is public transport operating scheduled services, expressly excluding air travel. A scheduled bus, a suburban train or a long-distance train qualifies; a taxi or a domestic flight does not. What matters is the means of transport, not the price, and not whether the ticket is issued for a month or for a year.

The wording names three kinds of journeys. First, the trips between home and the first place of work. Second, trips by an employee without a first place of work to a location or area he must reach permanently and typically every working day. Third, with no stated purpose at all, journeys on local public transport.

The third group is the most generous. For local transport the statute does not limit the exemption to the commute; a Saturday shopping trip by tram is covered by the wording as well. For long-distance travel, on the other hand, the exemption stays confined to the two work-related kinds of trips.

Both sentences require the benefit to be provided in addition to the wages owed anyway. Sentence 2 adds that the employee must be able to use it by virtue of the employment relationship. A works agreement promising every member of staff a pass satisfies that without further ado.

The flip side: a smaller commuting allowance

Sentence 3 of number 15 links the exemption to the employee's income tax. Whatever was received tax-free under sentences 1 and 2 reduces the amount he can deduct as commuting allowance. The statute thereby prevents the same commute from being paid for tax-free once and deducted as an employment expense a second time.

Under § 9(1) sentence 3 no. 4, the commuting allowance itself is 0.38 euro per full kilometre of distance for each working day on which the first place of work is visited. It is capped at 4,500 euro per calendar year, unless the employee drives a car of his own or one made available to him.

Anyone commuting by bus and train quickly runs into an awkward sum. If the allowance is smaller than the tax-free pass, nothing is left to deduct. How the remainder affects the tax bill also depends on the employee lump sum for work expenses, which the course on travel costs and the home office explains.

Under § 9(1) sentence 3 no. 4 sentence 5, the same reduction also applies to tickets that stay tax-free only because of the 50 euro monthly threshold or as a staff discount. Routing a pass through the threshold instead of number 15 does not avoid the offset; it only uses up room left for other benefits in kind.

For the offset to reach the tax office, the employer has to report it. § 41b(1) sentence 2 no. 6 requires the payroll tax certificate to show the tax-free employer benefits to be set against the commuting allowance. A transit pass missing from the certificate is the employer's error, not the employee's.

Flat rate instead of exemption: 25 and 15 percent

§ 40(2) sentence 2 no. 2 opens a second route. Instead of the exemption, the employer may tax the benefits of number 15 at a flat rate of 25 percent. The price is a tax the employer bears himself; the gain lies with the employee, whose commuting allowance then remains uncut.

Two features make this route remarkable. It is available even when the benefit is not provided in addition to the wages owed anyway. And according to the wording it applies uniformly to all number 15 benefits of a calendar year; switching from month to month is therefore not provided for.

Under sentence 4 the tax base is the employer's outlay including VAT. Subsection 3 makes the employer bear the flat-rate payroll tax as its debtor. Shifting it onto the employee anyway does not help: the shifted amount is treated as extra wages received, and the base is not lowered by it.

Number 1 of the same sentence deals with cases that number 15 does not reach, such as a travel allowance for the employee's own car. The employer may tax such benefits in kind and additional allowances at a flat 15 percent, as long as they do not exceed what the employee could deduct as work expenses.

Unlike the 25 percent route, benefits taxed this way do reduce the work-expense deduction. They therefore also belong on the payroll tax certificate, under § 41b(1) sentence 2 no. 7. Under § 40(4) the option is exercised by filing a payroll tax return that states the flat-rate payroll tax.

• exempt under number 15: no tax, but the commuting allowance is reduced
• flat rate of 25 percent: tax borne by the employer, no reduction, even without additionality
• flat rate of 15 percent: only outside number 15, with reduction, capped at the deductible work expenses

Nursery places and short-term care

Number 33 exempts employer payments for the accommodation and care of employees' children who are not yet of compulsory school age in nurseries or comparable facilities. The additionality condition applies here too. The wording sets no ceiling; whatever is spent on accommodation and care is covered.

The decisive feature is that schooling is not yet compulsory. Once it begins, the exemption ends, even if the child then attends after-school care. The business therefore does not need to guess the child's age, but to know whether school attendance is already compulsory. A short confirmation from the parents kept with the payroll records saves questions later.

What qualifies are facilities. Nurseries and comparable facilities are named expressly; care in the employee's own household is not described. For that gap there is a separate, much narrower number.

Number 34a has two letters. Letter a exempts additional payments to a service company that advises the employee on the care of children or relatives in need of care, or refers carers. Letter b exempts payments for short-term care, including in the private household, but only for compelling, work-related reasons.

Letter b covers children who have not yet completed their 14th year, children unable to support themselves because of a disability that arose before their 25th year, and relatives in need of care. The limit stands at the end of the letter: as long as the payments do not exceed 600 euro in the calendar year.

Health promotion: 600 euro and a certificate

Number 34 exempts additional employer benefits that prevent and reduce health risks and promote health at work. In terms of quality, earmarking, targeting and certification, the benefit must meet the requirements of §§ 20 and 20b of Social Code Book V. It is exempt to the extent that it does not exceed 600 euro in the calendar year.

The words to the extent have an arithmetic consequence. If the benefits exceed the limit, only the excess becomes taxable; the first 600 euro stay free. The 50 euro benefit-in-kind threshold works differently: its wording says if, and a single euro too much makes the whole monthly amount taxable.

Who certifies is set out in § 20(2) of Social Code Book V. The national association of statutory health insurers lays down the requirements and a uniform procedure for certifying offers through the health insurers. It publishes an overview of certified offers on its website, where a course can be checked before booking.

For older cases, § 52(4) sentence 11 EStG contains a transitional rule. For health measures that had begun without a certificate before 1 January 2019, the certification requirement first became decisive for benefits in kind granted after 31 December 2019. That grace period has long expired; without a certificate, number 34 does not apply.

In practice this means: a back-care course whose provider presents a certificate can run under number 34. A gym membership at a studio offering no certified programme does not. At most it remains a benefit in kind within the monthly threshold, with all the limits that the course on the payroll tax return describes.