Tax on employer loans: monetary benefit

Anyone who should receive a low-interest employer loan from their employer must state this as a monetary benefit in the tax return. A tax must then also be paid on the low-interest employer loan as for other monetary benefits (benefits in kind) if this exceeds the tax-free allowance.

The monetary advantage here is not the loan amount

The monetary advantage here is not the loan amount

However, the monetary advantage here is not the loan amount, but the interest difference. The market interest rate and the interest rate charged by the employer determine whether there is a benefit in kind. A fixed interest rate as well as a variable interest rate count here. This monetary benefit must then be stated in the tax return if it turns out to be higher than 44 dollars per month.

It is irrelevant whether the interest is paid to the employer on a monthly, quarterly or yearly basis. However, a discount of 4% is granted on the market interest rate – this does not mean that the interest rate itself is reduced by 4%, but only 4% is deducted from it. As with other benefits in kind, the non-cash benefit is set at 96% of the normal market price.

The market interest rate used by the tax office for calculation is always based on the effective interest rate of the Deutsche Good Credit, which corresponds to the average of all effective interest rates on the financial market. However, if the employer loan is earmarked, the type of loan is taken into account.

If the interest rate difference, and thus a non-cash benefit in the case of an employer loan, exceeds the amount of USD 44, this non-cash benefit is to be regarded as wages and is therefore subject to wage tax.

What sounds complicated is pretty simple in practice

What sounds complicated is pretty simple in practice

An employee receives a low-interest employer loan of 5,000 dollars over 1 year at an interest rate of 2%. In this example, the Good Credit would require an effective interest rate of 5% – this would be 3% below the market interest rate.

Specifically, this means that the effective interest rate of 5% is reduced by 4% since it is a non-cash benefit – i.e. to 4.8% (96% of 5%). The interest rate advantage for the employee is 2.8% (4.8% market interest rate – 2% interest on employer loans). This corresponds to a monthly interest advantage of 11.67 dollars (5000 dollars x (1/12) at an interest rate of 2.8%) – this is below the exemption limit of 44 dollars per month for monetary benefits and nothing has to be taxed.

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