Flat-rate taxed benefits in kind represent a special form of employee benefits where employers have the option to handle the payroll tax differently. Instead of deducting it individually through your payroll, they can apply a fixed, flat tax rate and pay it directly to the tax office. This is essentially a simplification rule where the employer assumes the tax burden for the monetary value of the benefit. For you as an employee, this often means that you receive the benefit without it increasing your taxable income or affecting your individual tax progression. This method is commonly used to simplify the administration of certain benefits – such as gifts, bonuses, or participation in events – particularly when these don't fall under tax-free allowances (like the €50 benefit-in-kind allowance).
The option for lump-sum taxation is regulated in various sections of the German Income Tax Act (EStG). This represents an important and frequently used provision.Section 37b of the German Income Tax Act (EStG)This regulation allows employers to pay a flat income tax rate of 30% (plus solidarity surcharge and, if applicable, church tax) on company-related benefits in kind that are granted in addition to the regular salary. The major advantage here is that these flat-rate taxed benefits are then exempt from social security contributions for you as an employee. Typical applications of § 37b of the Income Tax Act include, for example:
- Gifts to employees that exceed the tax-free thresholds.
- Non-monetary incentives or bonuses (e.g., travel vouchers, electronics/technical equipment).
- Costs for participating in certain company events that could be considered taxable benefits (fringe benefits).
In addition to Section 37b of the Income Tax Act, there are other regulations in theSection 40 of the German Income Tax Act (EStG)which allow for flat-rate taxation for specific services, often with different tax rates:
- Meal subsidies (often 25%).
- Recreational assistance/subsidies up to certain annual limits (25%).
- Subsidies for private internet usage or for the transfer of company IT equipment (25%).
The decision to opt for lump-sum taxation lies with the employer. This option simplifies payroll administration and allows them to structure attractive additional benefits in a legally compliant and employee-friendly way. For you, this usually results in a net advantage since you receive the benefit without any deductions. However, it's crucial that these benefits are provided "in addition to the regular salary obligations" and don't represent a salary conversion. Employers must also properly document the application of lump-sum taxation. Modern benefit platforms like HelloBonnie can help employers manage such taxable benefits alongside tax-free options (like the €50 allowance in kind). This enables offering a diverse and tax-optimized benefits portfolio through a single system, increasing flexibility while simplifying administration.