Non-cash benefit (50-euro limit)

The tax-free benefit in kind under Section 8(2), Sentence 11 of the Income Tax Act is the tax foundation that makes employer-sponsored health insurance so cost-effective for both employers and employees. Employees can receive benefits in kind from their employer up to 50 euros per month, free of income tax and social security contributions—provided that the value is correctly classified as a benefit in kind and the exemption limit is not exceeded.

Legal basis for the 50-euro exemption limit

Non-monetary benefits are governed by Section 8(2), sentence 11 of the Income Tax Act (EStG). This provision allows non-monetary benefits provided to employees to be excluded from taxable wages up to a monthly exemption limit of 50 euros. Important: This is an exemption limit, not a tax-free allowance. If the 50-euro limit is exceeded by even a single cent, the entire benefit in kind is taxable—not just the excess amount.

The exemption limit applies to the total amount of all non-cash benefits received in a given month, not to individual benefits. So, if an employee already receives 40 euros per month on a benefit card, they have only 10 euros left to spend on the supplementary health insurance before the exemption limit is exceeded. This is relevant in practice because small and medium-sized businesses often operate several non-cash benefit models simultaneously: meal vouchers, job tickets (in some cases), benefit cards, gas vouchers, and, of course, the supplementary health insurance.

Why supplementary health insurance is considered a benefit in kind

For a benefit to qualify as a non-cash benefit, it must not be a monetary payment and must not be convertible into cash. The supplementary health insurance premium meets this requirement: the employer pays the premium directly to the insurer, the employee cannot have the premium paid out in cash, and the insurance coverage is earmarked exclusively for health services. The Federal Fiscal Court and the tax authorities have confirmed this classification in several letters.

Another requirement is that the employer must act as the policyholder. If the employee were the policyholder and the employer reimbursed the premiums, this would technically constitute cash wages—and the tax exemption would no longer apply. All standard group supplementary health insurance policies on the market are therefore structured so that the employer remains the policyholder.

What happens if the premium exceeds 50 euros?

For supplementary health insurance plans with higher annual budgets—such as 600 or 900 euros—the monthly premium can quickly exceed the 50-euro threshold. In such cases, employers have two options:

• Flat-rate taxation under Section 37b of the German Income Tax Act (EStG): The employer taxes the premium at a flat rate of 30 percent, plus the solidarity surcharge and church tax. For the employee, the benefit is then effectively tax-neutral, as the employer bears the tax burden. In most cases, the benefit is also exempt from social security contributions.
• Flat-rate taxation under Section 40(2) of the Income Tax Act (EStG): For specific cases such as cafeteria meals, recreational allowances, and certain health benefits, there are separate flat-rate provisions with rates that are sometimes more favorable. Supplementary health insurance (bKV) is typically not covered by these provisions but is handled under Section 37b.

Calculation example: A plan with a monthly premium of 60 euros and an annual budget of 700 euros. Under the flat-rate taxation system pursuant to Section 37b of the German Income Tax Act (EStG), 30 percent of the total annual amount of 720 euros is subject to tax, plus the solidarity surcharge—amounting to approximately 228 euros in annual taxes. For the employee: a 700-euro tax-free budget, with full exemption from social security contributions. Compared to a gross salary increase, which would result in approximately 1,400 euros in annual employer costs for the same net effect, the company saves more than half.

Common sources of error in practice

There are three situations that regularly result in the tax exemption not applying, or not applying in full:

First: Cumulative exemption limits. Companies that already operate multiple non-cash compensation schemes often fail to check, when introducing a supplementary health insurance plan, whether the total value of all non-cash benefits exceeds the €50 limit. The tax office calculates the total retroactively—with the result that income tax must be paid retroactively. A clear overview of non-cash benefits per employee is therefore essential before introducing the supplementary health insurance plan.

Second: Managing partners. In the case of managing partners—particularly those with a majority stake—the tax authorities scrutinize whether the bKV can actually be classified as wages or whether it constitutes a hidden distribution of profits. It is always advisable to seek tax advice before signing a contract.

Third: Family members. If family members are covered under the policy and the premium is paid by the employer, this may, depending on the policy structure, constitute an additional non-cash benefit for the employee, which must also be included in the 50-euro exemption limit. Many plans therefore distinguish between an employer-funded portion for the employee and a privately funded portion for family members.

FAKTOR MENSCH : In our consulting practice, the €50 threshold is the most common reason for inquiries from payroll accounting—not because of the amount itself, but because of its accumulation with existing non-cash benefits. Our recommendation: Before introducing a supplementary health insurance plan, conduct a comprehensive inventory of non-cash benefits across the workforce and calculate the remaining per-employee allowance for each pay grade. As a result, it is often possible to select a pay grade that stays exactly below the limit, or to opt for a deliberately higher budget with direct flat-rate taxation—both options are predictable and tax-stable.

Current Legal Situation and Outlook

The €50 limit has been in effect at its current level since 2022 (previously €44). An increase is regularly discussed in political circles, but as of now, no concrete decision has been made. Employers should keep an eye on developments: any increase would further boost the appeal of supplementary health insurance and open up new opportunities for structuring benefit plans within the tax-exempt limit.

Conclusion

The tax-free benefit in kind under Section 8(2), Sentence 11 of the German Income Tax Act (EStG) is the cornerstone of the economic appeal of supplementary health insurance (bKV). The €50 exemption limit fully covers the majority of standard market-rate plans and enables employers to provide employees with genuine health benefits at low cost. For higher-budget plans, supplementary health insurance remains cost-effective even with flat-rate taxation—provided, in both cases, that there is a clear inventory of non-cash benefits and a technically sound selection of plans.