Many employers are barely aware of it, yet it is a real tax bonus: the holiday allowance. Under this scheme, the employer pays an allowance to their employee and their family for holiday purposes. What makes this scheme unique is that the employer can pay the applicable income tax as a lump sum, thereby saving both parties the cost of social security contributions.
How does the holiday allowance work for tax purposes?
The legal basis is Section 40(2)(3) of the Income Tax Act. The employer deducts a flat-rate income tax of 25 per cent, plus the solidarity surcharge and a flat-rate church tax. It is crucial that certain annual maximum amounts are not exceeded. In that case, the allowance is not only treated as a flat-rate for tax purposes, but is also entirely exempt from social security contributions:
- Employees themselves: 156 euros
- Spouse: 104 euros
- Per child: 52 euros
A married employee with two children can therefore receive a total of 364 euros under the tax relief scheme.
What counts as a holiday?
The law does not provide an exhaustive definition of the term. It refers not only to traditional holiday trips, but also, for example, to visits to an amusement park or a water park. It makes no difference whether the holiday is spent at home or elsewhere. This was clarified by the Magdeburg Regional Finance Office in a ruling dated 29 April 2010 (Ref. S 2371, 4, St 225).
Evidence for the tax office
In order for the tax office to recognise the flat-rate allowance during a tax audit, the employer must be able to prove that the allowance was actually used for leisure purposes. The simplest way to do this is if the payment is made within three months before or after the holiday. In such cases, this temporal proximity is sufficient as evidence. In all other cases, a brief written statement from the employee confirming that they will use the allowance in connection with their holiday within a specific period is sufficient. The tax office, however, is not generally required to request invoices for hotels or holiday lettings. However, the Federal Fiscal Court has ruled that a mere presumption regarding the use of the allowance is not sufficient (BFH, judgement of 19 September 2012, ref. VI R 55/11).
Scope for creativity for savvy employers
The maximum amounts apply per employee and per employment relationship. This means that anyone with multiple employment relationships can receive a holiday allowance from each employer. If both spouses work for the same employer, each of them can claim their own allowance, including the supplement for the other spouse and their joint children. For a married couple with three children who are both in employment, the tax-free allowance amounts to a total of up to 832 euros.
Shareholders and managing directors of a GmbH can also benefit from this model if their spouse is employed by the company.
A further practical note: The allowance is not limited to children who are listed in the employee’s electronic income tax deduction details. Stepchildren or the spouse’s children may also be taken into account if the relevant supporting documents are submitted to the payroll department.
Anyone wishing to make use of these options or to check whether they can be applied to their own employment relationship should seek tax advice. The specific requirements and the correct processing by the payroll department are crucial to ensuring that the flat-rate arrangement will stand up to a tax audit should the need arise.
Source: Haufe: Tax
This article was created with the help of AI and has been editorially reviewed.
