Many companies are already preparing for this year’s Christmas party. However, especially with regard to payroll tax, several pitfalls must be considered. From 2024, the legislator intends to grant a more generous tax-free allowance. What are the plans?
Whether for small or large companies: company events are a popular method to strengthen employee loyalty and team spirit. Management can thus use the opportunity to look back on shared successes and appreciate the work accomplished. And the team can interact in a relaxed atmosphere. The Christmas party, in particular, is therefore standard practice in many places. However, summer parties or company outings are also often organized throughout the year.
How Christmas Parties and Summer Parties Remain Payroll Tax-Free
For payroll accounting, however, company events are associated with several questions. Generally, the event incurs costs (e.g., for food, drinks, room rental, admission tickets, etc.), which the employer bears for everyone. These are therefore benefits for the employees. Does payroll tax also have to be withheld?
A company event remains payroll tax-free if
- participation is open to all employees of the company,
- the employer’s benefits do not exceed 110 euros per company event and participating employee, and
- a maximum of two company events are held annually.
The amount of 110 euros is a tax-free allowance. If the employer’s benefits for the company event exceed this amount, the excess amount must be subject to payroll tax. This can be done individually per employee or through lump-sum taxation.
Important: Higher Tax-Free Allowance Planned from 2024
From 2024, the federal government plans, through the so-called Growth Opportunities Act, to increase the tax-free allowance for company events from the current 110 euros to 150 euros. This therefore gives employers a little more leeway when organizing events.
Payroll Accounting Must Check Tax-Free Allowance
Ideally, no payroll taxation is required. However, this must be carefully examined. Payroll accounting must therefore determine which expenses were incurred (incl. VAT) and how many employees actually participated. The costs are then to be divided per capita. If the tax-free allowance is not exceeded and the other aforementioned conditions are met, the event remains payroll tax-free.
Popular Topic in Tax Audits
Accounting must proceed very carefully and precisely here. In a payroll tax audit, company events are regularly a focus. For example, it is checked whether expenses directly related to the company event have been considered. It is also important that the event was actually open to all employees and not, for example, only to selected executives. Expert knowledge in accounting is crucial here to avoid potential payroll tax risks.
Image source: Adobe Stock Photographer: s-motive
Author
Sylvia Meier
Guest Author
Sylvia Meier is a certified financial economist (FH) and has worked at the tax office, in consulting (Big Four firm), and for a specialized publisher. Today, as a freelance consultant, she supports companies and can demonstrate numerous publications, particularly on the topics of taxes, controlling, accounting, and finance.
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