Ask a tax advisor on the topic of Payroll

Taxation of employer-funded further training allowance

July 16, 2012 | 25,00 EUR | answered by Dr. Yanqiong Bolik

Dear Sir or Madam,

I am currently completing a part-time MBA program that is specialized in my professional field.

Instead of a salary increase, at the beginning of my studies, I agreed with my former employer on a subsidy for further education, which was contractually agreed with a repayment clause in case of premature termination of the employment relationship and was paid to me tax-free.

During the interview with my new, current employer, I mentioned the impending full repayment due to a job change and I was assured that the amount would be fully covered by my new employer (also stated in the employment contract as "payment of up to XXXX EUR").

I have now inquired about the amount with the HR department and it has been confirmed to me that it will be taken into account in the next salary payment. This has indeed happened after providing proof of the study costs and the repayment confirmation; however, I had to pay taxes on the subsidy as part of the salary payment, leaving me with very little net amount to cover the tuition fees.

Upon querying, the HR department informed me: "When we pay out an amount "net", the actual costs for us are significantly higher, as we have to pay taxes on this amount."

Now my question is: Is it not the case that a company can pay out the amount tax-free, as long as this is contractually agreed with the employee and the program is related to the professional activity? Why was my previous employer able to pay out the amount tax-free?

What arguments can be made in this case to the HR department; there was no discussion about payment gross or net.

Thank you for your competent response!

Dr. Yanqiong Bolik

Dear inquirer,

Thank you for your inquiry, which I will be happy to answer taking into account your commitment and the rules of this platform.

Please note that my explanation is based on the situation you described, and that adding, omitting, changing information, or the ambiguity of information can change the tax result.

According to your description of the situation, you are obliged to repay the nominal amount of the further training grant when it becomes due (in case of premature termination of the employment relationship with the previous employer). This contract is therefore a contractual agreement, in which your previous employer temporarily transfers an amount to you for use (loan). The payout of a loan amount is not subject to income tax. Therefore, you received the amount without any income tax deduction.

The payment from the new employer seems to be a one-time payment within the scope of your employment relationship, so you do not need to repay it as it is considered salary. Salary is generally subject to income tax. You will only receive the full agreed amount if the amount to be taken over was agreed as a net amount in your contract. Otherwise, the employer is generally obliged to withhold and pass on the income tax and social security contributions, thus paying out the net amount.

I hope I was able to provide you with an overview.

If there are still any uncertainties, please feel free to use the follow-up function.

Best regards,
Dr. Yanqiong Bolik
Tax advisor
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: info@zdbz.de
www.steuerberatung.zdbz.de