50-euro exemption limit

The 50-euro exemption limit under Section 8(2), sentence 11, of the Income Tax Act (EStG) is the linchpin of supplementary health insurance (bKV) taxation. If the employer’s contribution remains below this threshold, the benefit is exempt from both income tax and social security contributions for all parties involved: The employer pays only the contribution, the employee receives the full value, and nothing appears on the pay stub. If the threshold is exceeded, the calculation changes fundamentally—not proportionally, but entirely.

Tax-Exempt Threshold, Not Tax-Exempt Allowance — The Costliest Mistake

In practice, this distinction is often overlooked, and it is the most common reason for unpleasant surprises on pay stubs.

With a tax-free allowance, the portion up to 50 euros would remain tax-exempt; only the amount above that would be taxable. With a tax threshold, the tax exemption is completely lost as soon as the threshold is exceeded—even by just one cent.

The example calculation clearly illustrates the difference:

• 49 euros monthly premium: tax- and social security-free. Employer cost = 49 euros.
• 51 euros monthly fee: fully subject to income tax and social security contributions. It is not 1 euro but 51 euros that is subject to tax—plus social security contributions on the entire amount.

A two-euro increase in the premium therefore results in a cost increase that is many times greater than those two euros. That is precisely why the premium amount deserves at least as much attention as the scope of coverage when choosing a plan.

Contribution Does Not Equal Budget

A common misunderstanding that repeatedly leads to poor decisions: The deductible applies to the monthly premium, not to the health care budget. An annual budget of 600 euros does not mean a monthly premium of 50 euros—the premium is generally significantly lower than that, because no group fully exhausts its budget, and the insurer calculates premiums accordingly.

In practice, this means that even generous budget levels often remain below the exemption threshold. Anyone who assesses the threshold based solely on the budget amount will rule out rates that would pose no tax issues.

All non-cash compensation is added together

The limit does not apply to the supplementary health insurance (bKV) alone, but to the total of all non-cash benefits received by an employee in a given month. If the company offers additional benefits, they are added together:

• Gift cards and prepaid cards
• Gas vouchers and designated-purpose vouchers
• Job ticket, unless it is tax-exempt on its own
• Gift certificates and similar benefits in kind

A real-world example: A company introduces a supplementary health insurance plan with a monthly premium of 40 euros and, at the same time, issues a benefit-in-kind card worth 50 euros. The total amounts to 90 euros—the limit has been exceeded for both benefits. As a result, 90 euros are subject to income tax and social security contributions, even though each benefit individually would fall below the limit.

Coordination with payroll accounting must therefore take place before the decision on the compensation package is made. Anyone who realizes only after the contract has been signed that an existing benefit has already reached the limit has only two options: taxation or reducing the other benefit.

Requirement: No right to choose cash

This benefit applies only if employees receive exclusively insurance coverage and cannot request a cash payout. If employees have the option to choose a cash payment instead of the supplementary health insurance, this constitutes cash wages—in which case the exemption limit is irrelevant, regardless of the contribution amount.

The same applies to the subsidy model: If the employer merely contributes to a policy that the employee has taken out on their own, this constitutes a cash payment to the employee. For the benefit to be treated as non-cash compensation, the employer must be the policyholder and must pay the premium directly to the insurer.

Structure When There Are Multiple Benefits

If multiple services are running simultaneously, it’s better to assign them intentionally rather than randomly. There are two common approaches:

• Subject to the bKV exemption limit: The other benefit is taxed at a flat rate, while the bKV remains tax-free. This makes sense if the other benefit is small and the bKV is intended to be the main selling point.
• Exemption limit reserved for the larger benefit: The supplementary health insurance is taxed according to one of the four options. This makes sense if the other benefit is already close to maxing out the limit anyway.

There is no one-size-fits-all answer as to which option is more cost-effective—it depends on the contribution amount, the number of employees, and the applicable tax model. The comparison should be calculated, not estimated.

What Happens If You Exceed the Limit

If the threshold is exceeded, there are four options to choose from, which differ significantly in terms of cost, social security obligations, and impact: flat-rate taxation under Section 37b of the Income Tax Act (EStG), the flat-rate method under Section 40(1) of the Income Tax Act (EStG), net wage taxation, and treatment as a regular non-cash benefit. None of these is generally the best option—the choice depends on the size of the workforce, the contribution amount, and the objective of the program.

Common Mistakes

• The exemption limit is based on the year rather than the month
• Existing non-cash benefits are not included in the pay scale selection
• The budget amount is being confused with the contribution amount
• The structure is set up as a grant, which means the exemption limit does not apply from the outset
• Premium adjustments made by the insurer are not reviewed—a plan that starts at 47 euros may exceed the limit after an adjustment

Conclusion

The exemption threshold is not a minor detail in payroll accounting, but a hard-and-fast planning factor. It determines whether a supplementary health insurance plan operates without any additional tax burden or whether one of the four taxation models must apply—and the difference between the two is costly. Those who take it into account from the very beginning when selecting a plan, designing a benefits portfolio, and drafting contracts will avoid having to make corrections later on, which usually cannot be done cleanly retroactively.

This article provides a general overview and is not a substitute for tax advice in specific cases. Section 8(2), sentence 11 of the Income Tax Act (EStG), as amended, applies.