Definition and legal basis of expense allowances
An expense allowance is a financial benefit granted to a person to compensate for actual or standardized expenses incurred due to an activity carried out on behalf of an organization, association, institution, or the state. It is distinct from remuneration or salary as well as reimbursement of individual costs and claimed expenses. In German law, the concept of expense allowance is anchored in various laws and regulations and plays a significant role in association, tax, social, and employment law.
Distinction from remuneration, reimbursement of costs, and honorary allowance
Expense allowances serve exclusively to compensate for expenses incurred by the activity and are not to be understood as remuneration for work performed. By contrast, remuneration or a fee constitutes payment for services rendered.
Reimbursement refers specifically to incurred and documented expenses, such as travel, accommodation, or meal costs. The expense allowance may be paid as a lump sum or fixed amount and often is based on standardized average values.
The honorary allowance (§ 3 No. 26a EStG) is a special case of tax-free expense allowance and is frequently paid in connection with volunteer activities in associations.
Legal basis and statutory regulations
Civil law
The German Civil Code (BGB) regulates expense allowances in various contexts. An example can be found in Section 670 BGB, according to which an agent is entitled to reimbursement of expenses that were necessary for the execution of the mandate and which he or she reasonably considered required.
Public service and corporations
In the public sector there are numerous special provisions governing the granting of expense allowances, for example for members of committees, honorary judges, office holders, members of municipal and city councils or members of the voluntary fire department. The details are often governed by state laws or specific compensation ordinances (e.g., local government or volunteer compensation acts).
Tax classification
Tax exemption and tax obligation
Expense allowances may be tax-exempt, taxable, or tax-advantaged. Tax exemption is specified in particular in § 3 No. 12 and § 3 No. 26 et seq. of the German Income Tax Act (EStG). Crucial factors are usually the scope of the activity and the amount of the allowance. Flat-rate payments for certain honorary positions are tax-free within statutory upper limits.
Social security law
As far as expense allowances are paid tax-free under § 3 EStG, they are generally also exempt from social security contributions. If the amounts paid exceed certain thresholds, a social security contribution obligation may arise.
Typical areas of application
Associations and non-profit organizations
In associations and non-profit organizations, expense allowances are often paid to board members, treasurers, and other office holders to compensate members for their efforts, without establishing employment or being regarded as remuneration for work performed.
Public and local office holders
Members of municipal councils, county councils, or other committees receive expense allowances as compensation for their time, travel costs, and other expenses incurred in connection with the discharge of their mandate.
Fire department, disaster control, and emergency services
For service in the field of disaster protection or voluntary fire service, flat-rate expense allowances are often paid. These regulations are set out in detail in the specific fire and disaster protection laws of the federal states.
Requirements and legal consequences
Requirements for entitlement
Whether a claim to an expense allowance exists depends on the underlying statutes, ordinances, or legal provisions. A prerequisite is generally that expenses have actually been incurred in the performance of a task and that the allowance is explicitly provided for in the relevant regulations.
Legal consequences of granting
Paying an expense allowance can strengthen volunteer or honorary work without triggering social insurance contributions and employment law consequences such as protection against dismissal or vacation entitlements, provided statutory or bylaw limits are observed.
Expense allowances: limits and risks of structuring
The flat-rate payment, especially beyond tax-free upper limits, may result in liability for tax and social security contributions. It should also be noted that excessively high expense allowances under association law may lead to the loss of charitable status (§ 55 para. 1 No. 3 AO).
Special features in international legal comparison
Comparable regulations exist outside Germany, although the definition and structure differ from country to country. The German approach is characterized by preferential treatment for voluntary work. In other legal systems, different tax and social security consequences may apply.
Summary
The expense allowance represents a central element of the German system of remuneration and compensation for honorary, part-time, as well as mandated activities. Its legal design is complex and depends on the area of application, especially with regard to tax and social security law. To avoid legal disadvantages, a careful examination of the relevant legal and bylaw provisions is necessary.
Frequently asked questions
How is the expense allowance legally distinguished from employment income?
The legal distinction between an expense allowance and employment income is crucial for determining tax and social security obligations. An expense allowance generally serves to compensate actual or estimated expenses incurred in the course of activities on behalf of third parties, such as voluntary or executive functions. The payment must not constitute remuneration for work performed nor consideration for making labor available. However, if the expense allowance substantially exceeds the actual expenses or is a regular, contractually determined payment, it may be classified as employment income and subject to wage tax and social insurance. Key factors are the purpose of the payment, its amount relative to actual expenses, and the contractual structure and practical execution.
Are expense allowances subject to taxation?
Whether an expense allowance is taxable depends on its type and purpose. As a general rule: pure expense allowances covering only actual or predetermined estimated costs are regularly tax-free (§ 3 No. 26/26a EStG, honorary and instructor exemption). If the allowance is paid without directly attributable expenses or exceeds the tax-free threshold, the excess amount is taxable. In addition, the specific provisions of the relevant tax laws—such as public sector and association lump sums—must be observed.
How are expense allowances treated under social security law?
For social security classification, it is decisive whether the payment constitutes pure reimbursement of expenses or employment income. Expenses reimbursed on a one-to-one basis are contribution-free (§ 14 para. 1 SGB IV, § 1 SvEV). However, lump sums exceeding actual or credibly substantiated expenses are generally regarded as employment income subject to contributions. Voluntary activities in certain organizations (e.g., non-profit associations) may benefit from special exemptions, provided statutory conditions are met. The exact social security treatment depends on the nature of the activity, the amount paid, and whether an employment relationship exists.
What documentation requirements apply to expense allowances?
For tax and social security recognition of an expense allowance, comprehensive documentation is required. The beneficiaries or organizations must keep and retain appropriate receipts such as vouchers, travel logs, cost evidence, or similar records to prove actual expenses. If lump sums are paid, the calculation method (e.g., official mileage rates, per diems) must be documented. When audited by the tax office or social insurance agencies, corresponding documents must be provided without delay. Insufficient evidence may result in the payments being classified as taxable and social security liable income.
Which legal provisions govern the expense allowance?
The legal basis for expense allowances can be found in tax law (in particular § 3 No. 12, No. 26, and No. 26a EStG), in social security law (SGB IV, SvEV), and in special legislation or statutes, for example the Honorary Office Act or regulations for municipal office holders. In addition, association bylaws, fee schedules, or service instructions often contain specific provisions on the nature and extent of reimbursable expenses. The civil law basis is often established in service or work contracts that include provisions on reimbursement of expenses.
Can an expense allowance be paid retroactively?
Legally, retroactive payment of expense allowances is possible if expressly provided for in the relevant statutes, contracts, or other regulations. However, tax and social security law does not distinguish between ongoing and retroactive payments in terms of tax treatment. What matters is that reimbursement of expenses is provably based on actual or credibly documented expenditures and does not constitute concealed remuneration for services rendered. Special care must be taken to document reimbursed costs with retroactive payments.
What role does the amount of the expense allowance play in legal classification?
The amount of the expense allowance is a key indicator for legal classification. If the payment significantly exceeds the proven or credible expenses, the difference may be assessed as taxable and social security liable income. The same applies to excessive lump sums that evidently exceed the purpose of pure expense reimbursement. The statutory tax exemptions and contribution thresholds must be strictly observed. Furthermore, it must be ensured that the amount paid is commensurate with actual expenses, so as to clearly distinguish it from employment income.
