In this post, we will show you the benefits that tax-free gifts will bring your employees and your company. You will also learn what gifts can be given tax-free and what their limits are.
Small gifts maintain friendships and contribute to good relations between the giver and the receiver. That doesn’t only apply to personal life, but also to work life. With the right gifts, employers show their employees that they’re valued and appreciated.
But it’s beneficial to keep these gifts tax-free and make sure employees don’t have to pay tax contributions for them. The German government has put together a specific framework for this, which we will explain in this article.
What are tax-free employee gifts and why are they worth the investment?
Employee gifts are contributions that employers make in addition to a regular salary. By respecting certain limits, companies can target the entire workforce or individual employees.
Whether for personal occasions, company anniversaries, or holidays: Employee gifts express appreciation and recognition and make a valuable contribution to the well-being of the workforce and a positive working atmosphere. Well-chosen gifts promote employee motivation and satisfaction and also contribute to company loyalty.
To keep employee gifts tax-free, companies have to treat them as an addition to the regular salary in the form of a non-cash benefit. Within certain limits, non-cash benefits remain tax-free for employers and employees. Cash gifts, on the other hand, are taxed just like the regular salary. Learn more about these limits in the next section.
How much can you gift tax-free?
Almost any gift you give an employee in the U.S. is taxable. However, there are certain items that qualify as de minimis fringe benefits and are therefore excludable from income tax:
- Traditional birthday or holiday gifts (not cash) with a low fair market value
- Occasional group meals or cocktail parties
- Occasional theater or sporting event tickets
- Occasional coffee, donuts, and soft drink
- Gifts for special circumstances (such as flowers, fruit, books, or similar items) during an illness or for individual recognition
Your employees in Germany have a lot more options. To keep employee gifts tax-free in Germany, there are a few rules and limits to follow:
- Non-cash benefits (gift certificates, subsidies, etc.) are tax-free if they don’t surpass the monthly limit of €50.
- Gifts for personal occasions (such as company anniversaries, birthdays, weddings, the birth of a child, etc.) are tax-free up to €60 per month. If more than one occasion takes place in a month, the additional gifts are also tax-free.
- Cash gifts are always taxable.
- For company parties, up to €110 per employee is tax-free. You can even gift this twice a year.
- For the own goods and services of your company, you can give each employee a tax-free employee discount of up to €1.080 per year.
- As an inflation compensation premium, you can currently gift each employee up to €3.000 tax-free. This applies until the 31st of December 2024.
- Services for professional development are always tax-free when they help to improve the employability of your employees.
What are the benefits for employers?
Employee gifts increase a company’s appeal as an employer. Non-cash benefits motivate your employees and reward them for good work and dedication at the same time.
Employee gifts are also particularly important in times of crisis: This token of appreciation brings employees closer together and helps the entire company make it through uncertain times. The German government has reacted to the current situation by giving companies the opportunity to award a tax-free inflation compensation premium of up to €3.000 to their employees, which they will surely appreciate.
What gifts are popular with employees?
It’s important to consider the options carefully to find employee gifts that really contribute to positive and appreciative relationships within a company. Employees should enjoy the gifts and benefit from the non-cash benefits in their everyday life. The best options are high-quality products or gift certificates with which the company can meet the needs and wishes of its employees.
Popular employee gifts are:
- Gift certificates
Gift certificates can be direct non-cash benefits from the company, such as subsidized purchases or gift certificates from partners. Examples are gift certificates for gas, food or rechargeable gift cards that can be used at specified retailers.
To keep these non-cash benefits tax-free, they shouldn’t go above €50 per month, and it shouldn’t be possible to exchange a gift certificate for cash.
- Health-related gifts
Health-related gifts have become increasingly popular among employees. Some of the classic options are subsidies for a gym membership, meditation apps, or a company bike. The tax-free limit of these gifts is also €50 per month.
- Personal development
Other contributions that benefit mental fitness and personal development are highly valued by employees and also completely tax-free in Germany if they improve the employability of your employees. An especially beneficial option is learning a new language.
With digital language courses, for example by Babbel for Business, employees can flexibly and individually learn a language of their choice. Language skills are a benefit at work and in personal life because language learning promotes communication skills and intercultural understanding at the same time.
- Practical gifts for the home, kitchen, and office
Practical gifts for home and office are also appreciated and have a tax-free limit of €50 per month. For a company, it’s recommended to develop a theme that most employees are interested in. High-quality kitchen appliances, high-end writing utensils, exclusive phone cases and accessories, drinking containers for the office and to-go, and also stress balls for active relaxation at work are examples of well-received practical gifts.
- Company parties
Company and holiday parties are a highlight for many employees. As a gift for employees, they remain tax-free as long as the employer contribution doesn’t exceed €110 per person. That doesn’t include the tax-free contribution of €50 per month, which can still be given in addition.
Multiple benefits with tax-free gifts for employees
Companies should absolutely avail themselves of the tax advantages of non-cash benefits. They promote employee motivation and cohesion and show them that their individual contribution is important, especially in times of crisis, and is valued by their employer. At the same time, gifts for employees help limit a company’s salary costs because they are an effective alternative or complement to salary raises.