Salary in Money ./. Salary in Kind

The question whether a pecuniary reward is a payment in kind or a payment in money is relevant to §8 II cl. 11 EStG. This directly relates to whether a payment can be tax exempt or not. In the case 13/16, an employer took out a supplementary health insurance for the benefit of the employee, while in the case of 16/17, the employer only organized an insurance which the employees individually accepted.      

The relevance of this distinction is that payment in kind is exempt from taxation up to €44. If a payment in kind values € 44.01 or more, if it is completely subject to wage taxation – unless the employer volunteers to pay the tax on a flat basis. The Federal Fiscal Court decided on June 7, 2018 ( re VI R 13/16; VI R 16/17) and clarified the topic a bit more in these two cases.

Payment in Kind when Employer Takes out the Insurance

In case 13/16, the employer closed several supplementary health insurance policies to his employees for dental care, in-hospital treatment, and check-ups. The monthly premiums were lower than the exempt value. BFH confirmed that this was a salary in kind because the values remain underneath the threshold of §8 II 11 EStG.  

Grant for Closing Insurance Policy is Salary in Kind

The case VI R 16/17 worked differently. The employer informed his whole staff that he can offer them supplementary health insurance via a certain company for a special rate and he would co-pay the premium. Several persons accepted this offer, closed a contract, and paid their premiums. The employer paid the grant directly into the employee’s account. The individual amount did not exceed the threshold of §8 II 11 EStG. The Federal Fiscal Court held that this construction was not a salary in kind. A salary in kind only exists when the promise to pay comes from the employment contract. In this case, the employer only connected his employees to the insurance broker and paid a grant. The employer never promised to pay for the insurance itself, a key distinction.

At Employer’s Discretion

As the above cases show, BFH elucidates the employer’s discretion in shaping a salary. On the other hand, the exemption amount is nowadays very limited. Any amount exceeding this tax free threshold leads to full taxation of this salary in kind. This can be circumvented when the employer pays a taxable grant – like in the second case. The employee still has the double benefit of a personal deductible of “voluntary health insurance costs” as Sonderausgabe. 

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