How to work tax-free benefits in kind with a benefits card

In times of rising non-wage costs and growing competition for qualified employees, companies are looking for ways to motivate and retain their employees — ideally tax-optimized. Benefits in kind and in particular benefits cards offer an attractive solution here, because it allows companies to their employees Up to 780 euros tax-free per year send. But what exactly is behind these terms and how can employers and employees best benefit from them?

In this article, we explain the basics of tax-free benefits in kind and then go into more detail about the benefits card as an option for paying out benefits in kind to employees.

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What are benefits in kind? (Definition and tax benefits)

Benefits in kind are benefits that employers give their employees in addition to the regular salary be able to grant. In contrast to the classic salary increase, this is not cash or a monetary contribution in the form of additional salary, but a donation in the form of goods or services.

The most popular forms of payment in kind include:

• Merchandise vouchers for specific stores
• Fuel cards and mobility solutions
• Shopping vouchers for local retailers
• Health services and fitness offerings
• mobility offers
• Meal subsidies or vouchers for regional restaurants
• Employee discounts with local partners

The decisive advantage of benefits in kind? Under certain conditions, these benefits may be completely tax-free or at least tax-advantaged — a win-win situation for employers and employees alike.

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What are the requirements for tax exemption of benefits in kind?

With that Income in kind In fact, remain tax-free, must certain legal framework be complied with. The legal basis for this is the Income Tax Act. The basic requirements for tax exemption of benefits in kind are explained in more detail below.

1. Make optimal use of the 50-euro exemption limit

Since January 1, 2022, benefits in kind up to a value of 50 euros per month and employee can be granted tax-free (Section 8 (2) sentence 11 EStG). This exemption limit (previously 44 euros) is per employee and month and cannot be carried over to the next month. If done correctly, however, you can grant your employees up to 600 euros a year in tax-free benefits in kind.

‍Important: It is an exemption limit and not an allowance — if the limit is exceeded by even one cent, the entire amount is subject to tax and social security contributions.

It is also possible to grant employees an additional amount of 60 euros as a tax-free benefit in kind, up to three times a year. However, this requires a special personal occasion, such as a birthday or a wedding.

Overall, it is therefore possible to provide employees with benefits in kind of up to 780 euros per year - tax-free for both sides.

2. Comply with the additionality requirement

The benefits in kind must be paid in addition to the salary already owed. A salary conversion, i.e. a waiver of cash pay in favor of benefits in kind, is not possible if the tax exemption is to be claimed. The additionality requirement is set out in Section 8 (4) EStG defined.

3. Accrual to cash benefit

Another decisive criterion is the clear distinction between cash benefits. As in Section 8 (1) sentence 2 and 3 EStG Clearly regulated, benefits in kind may not be paid out as cash or amount to a cash payout. The following benefits are therefore not considered as benefits in kind:

• Direct payments to the employee's bank account
• Cash payouts
• remittances
• General bank cards or prepaid credit cards without restrictions

4. Observe the inflow principle

The inflow principle as a tax law concept determines when exactly a benefit in kind is considered “accrued” to the employee and is taxed accordingly. In concrete terms, this means that benefits in kind are taxable in the month in which they are available to the employee. With uniform monthly payments of up to 50 euros, such as via benefits cards in kind, tax exemption from payments in kind can be ensured.

5. Special rules for vouchers and bank cards

ATTENTION: Since January 1, 2022, there have been stricter regulations for vouchers and bank cards. They are only recognized as benefits in kind if they meet one of the following requirements:

1. They only entitle you to purchase goods or services
2. They are limited to a limited network of acceptance points. In concrete terms, this means that vouchers and bank cards must be limited either to individual stores or retail chains, specific product categories or regionally.
3. They are used exclusively for specific social or tax purposes

The details are in Payment Services Supervision Act (ZAG) § 2 para. 1 regulated.

With the Regional benefits card Regional Hero complies with the legal requirements for vouchers and bank cards through predefined limits.

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What is a cash benefit card?

A benefit card in kind is a tool with which companies can provide their employees with tax-free or tax-favorable benefits in kind. It works in a similar way to a credit card or debit card, but is limited to specific points of acceptance, product groups or postal code areas.

Employers provide the credit in kind for the card. Employees can spend their benefits in kind using the card.

The modern cash reference card is available in various versions:

1. Physical card: A classic plastic card with chip and magnetic strip
2. digital card: Can be used via smartphone apps with digital wallet function
3. hybrid solutions: Combinations of physical card and digital use.

Payment cards in kind are issued by specialist providers who ensure that all tax requirements are met. They ensure compliance with legal requirements and provide the necessary infrastructure and a network of acceptance points.

Some providers of benefits cards also offer the option of processing other benefits via the respective benefit card. From food allowance to mobility allowance to health credit. For employers who are interested in offering their employees various benefits, a multi-benefit solution is an ideal option. As a modern benefit card, the Regional Hero Card already offers the option of processing various benefits via a cash benefit card.

If you are interested or have any questions, please do not hesitate to contact us available.

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What are the benefits of cash payment cards?

The benefits of the benefit card in kind are manifold and benefit both employers and employees:

Benefits of the benefits card for employers:

1. Tax optimization: By granting benefits in kind tax-free, companies can optimize personnel costs.
2. employee retention: Payment cards in kind are an attractive employee benefit that contributes to employee satisfaction and retention.
3. Recruiting advantage: In competition for skilled workers, companies can score points with additional tax-free benefits.
4. Easy administration: Compared to traditional payments in kind such as gift vouchers, managing payment cards in kind is significantly easier and less time-consuming.
5. flexibility: The amount of the monthly charge can be adjusted depending on the company situation (within the 50-euro limit).
6. Transparent tracking: All transactions are recorded digitally, which makes it easier to document and provide evidence to the tax office.

Benefits for workers:

1. More net of gross: With a salary increase of 50 euros, taxes and social security contributions would often result in only 25-30 euros, depending on the individual tax rate. On the other hand, the tax-free benefits in kind are retained in full.
2. flexibility: Compared to vouchers for individual stores, payment cards in kind offer more flexibility when choosing shopping opportunities.
3. Easy to use: Handling is similar to that of a normal debit or credit card and can therefore be easily integrated into everyday life.
4. Digital control: Employees always have an overview of their remaining budget via apps or online portals.
5. No salary negotiation: The tax-free benefits in kind are granted in addition to the regular salary without the need for salary negotiation.

Calculation example: This is how much companies can save by using payment cards

If you wanted to give your employees a good 300 euros more net per month, a classic salary increase would cost you more than 700 euros. With the Regional Hero Card, the Payment card in kind from Regional Hero, the 300 euros reach your employees directly.

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5 steps to successfully introduce a cash benefit card

How do you introduce a payment card in kind in a company?

1. Provider selection: Compare different providers of payment cards in terms of costs, acceptance point network and service. Is sustainability or supporting the company location important to you? There are providers who also meet exactly these criteria.
2. implementation: Set up a company profile with the selected provider and define the user groups.
3. Staff information: Inform your employees about the new benefit offer and the benefits.
4. card issue: Distribute physical cards or set up digital solutions for your employees. Make things as easy as possible for your employees. This is how the employee benefit is used and has a positive effect on employee satisfaction.
5. Monthly recharge: Establish a process for regularly topping up cards. Some providers already provide automated, fully automated top-ups here.

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conclusion

Payment cards in kind as a future-oriented benefit

Payment cards in kind are an innovative and efficient way to provide employees with additional tax compensation. With the increased exemption limit of 50 euros per month, this instrument is more attractive than ever for companies of all sizes.

For employers, benefits cards in kind offer an easy way to strengthen employee loyalty and at the same time optimize taxes and social security contributions. In addition, employees benefit from real added value, which gives them more financial leeway in everyday life and connects them to the region.

In view of the increasing shortage of skilled workers and competition for qualified employees, regional benefits cards are becoming increasingly important as part of a modern benefit package. Companies that are not yet using this tool should seriously consider its introduction.

Would you like to find out more about tax-free benefits in kind and our regional benefits card?

We stand for you all Questions about benefits and benefits in kind gladly available.

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‍Note: This article is for general information and does not replace tax advice. The tax treatment of payments in kind may change as a result of legislative amendments or new case law. Please consult your tax advisor to review the current legal situation and, if necessary, apply it to individual cases.