Vacation pay and recreational allowances are two different types of payments made to employees, and they must be treated differently. When paying
- Vacation Pay This is wages, which, regardless of the amount, are subject to payroll tax withholding and social security contributions.
- Recreation Grants may be taxed at a flat rate of up to 25% and, to that extent, are exempt from social security contributions.
Vacation allowances are voluntary contributions from the employer toward an employee’s vacation expenses. Benefits in kind are also permitted. How the employee spends their vacation is irrelevant. Every employee is eligible to receive a vacation allowance, up to a maximum of
- 156 € for the employee,
- 104 € for a spouse or domestic partner and
- 52 € per child
may amount to. Every employee is eligible to receive the recreation allowance from their employer, regardless of whether they are a full-time employee, a part-time employee, a working student, or someone in a mini-job.
Flat-rate payroll tax: Recreation subsidies that are subject to tax may flat rate of 25% is subject to tax if the exemption limits are not exceeded during the calendar year. If the recreational allowance exceeds the threshold amounts, flat-rate taxation is not possible. In this case, income tax is withheld in the same way as for regular wages, meaning that the recreational allowances are then also subject to social security contributions in full.
Requirements for Providing Evidence: The flat-rate calculation is also possible, if the employee does not take a vacation trip but instead spends his or her vacation at home. The Appropriate Use of the Recreation Grant is considered fulfilled if a temporal relationship between the granting of the vacation allowance and the employee's vacation.
The employer must ensure that the subsidies are used for recreational purposes. The recreational subsidies must be intended for and used for the recreation of these individuals. This can be assumed if the recreational subsidy is temporal relationship is granted in conjunction with the employee's vacation.
A temporal connection between the payment of the subsidy and the employee’s recreational activity can generally be assumed if the recreational activity (e.g., vacation) takes place within three months ended or began before or after the payment of the subsidy, or if proof is provided of a down payment made within this period toward a recreational activity that had already been firmly agreed upon (e.g., booking a recreational trip). In cases where this temporal connection is maintained, a written confirmation from the employee regarding the designated use of the subsidy may be waived. If there is no such temporal connection, a written statement from the employee regarding the appropriate use of the subsidy is required.