Is an expense allowance tax-free?

An expense allowance can also include both income and value added tax, may even be subject to trade tax. The facts of the tax exemption are regulated in terms of income tax in the Income Tax Act and in terms of sales tax in the Sales Tax Act.

Tax-free expense allowances in the Income Tax Act

• Section 3 of the Income Tax Act (EStG) contains a long list of income tax-free. The relevant provisions for an expense allowance can be found in Section 3 No. 12, No. 26, No. 26a and No. 26b of the Income Tax Act.
• The best-known regulation is likely to be the so-called "flat rate for trainers" in accordance with § 3 No. 26 EStG. Anyone who works part-time in a largely educational field - for example as a Exercise leader in a sports club - who pursues can earn up to 2100 euros per year income tax-free to earn. Any income that goes beyond this is therefore subject to income tax.
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• It is also important to know that business expenses or business expenses may not be deducted from tax-free income.
• For freelancers, it can be important that an expense allowance is not only exempt from income tax, but also exempt from sales tax.


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The exemption from sales tax

• The tax-exempt facts regarding sales tax are regulated in § 4 of the Sales Tax Act (UStG).
• A voluntary activity is exempt from sales tax if what is paid for this activity or the expense allowance is only adequate compensation for the missed time and otherwise a reimbursement for the expenses incurred, cf. Section 4 No. 26 letter b) UStG.
• Does a trader do voluntary work - for example as president of a Chamber of Crafts - and if he receives compensation for it, this can, however, as trade income get ranked. It is then to be used to calculate the trade tax.

Expense allowances are only exempt from income tax up to a certain maximum amount. In this case, advertising costs can also not be claimed.