Tax tips for Christmas and the turn of the year for employers

Christmas parties and small gifts show appreciation for your employees and strengthen the bond with the company. To ensure that you don't suffer any tax disadvantages, we provide basic and interesting tax tips on accounting for costs. There is also information on the effects of the minimum wage increase.

Tip 1: Plan and tax your Christmas party correctly

A Christmas party is a cherished tradition in many companies. For employers, all reasonable expenses associated with a Christmas party are deductible as business expenses. For employees, however, some of the benefits may constitute taxable wages. Benefits from company events are only exempt from tax and social security contributions if they do not exceed the allowance of 110 euros for participating employees (for a maximum of two events per year). If you want to comply with this limit, you should calculate the number of participants carefully. This is because the so-called no-show costs must also be included in the assessment of the non-cash benefit of the participating employees.

If there are many cancellations due to illness or other reasons, the benefit for all participating employees can quickly exceed the tax-free amount of 110 euros. If their partners are also invited to the Christmas party, these costs must be attributed to the respective employees individually.

If the tax-free amount is exceeded or if more than two company events take place per year, employers can tax the benefits at a flat rate of 25% plus solidarity surcharge (SolZ) and, if applicable, church tax and pay the taxes.

Social security contributions are not due if the flat-rate tax is levied and paid in the payroll accounting period of the benefit. The option of lump-sum taxation alone is not sufficient for exemption from contributions under the Social Security Remuneration Ordinance. It must actually be carried out and with the payroll. The Federal Social Court (BSG, ruling of April 23, 2024, B 12 BA 3/22 R) confirmed this regulation, which has been in force since 2016, in its ruling.

The social insurance institutions have so far granted a small grace period as part of a fairness regulation. If the lump-sum payment is made by February 28 of the following year at the latest (deadline for submitting annual wage tax statements), the social security exemption is maintained. If the benefit is not taxed as a lump sum until later, e.g. as part of an income tax audit, social security contributions will also be due. Employers must then pay both the employer's and the employee's share.

Note:
Checks whether the non-cash benefits from the Christmas party exceed EUR 110 per employee. If so, the flat-rate tax must be declared and paid in the payroll accounting period of the Christmas party.

Tip 2: Christmas surprises don't have to be a tax trap

Christmas presents are not only given in private. Many employers also want to thank their employees for their hard work over the past year with a Christmas surprise. However, a Christmas bonus or even a 13th salary is a cash payment subject to wage tax and social security contributions. In most cases, only half of the gross amount remains net and employers have to add the employer's social security contribution on top. But it doesn't have to be that expensive. There are various options for a tax-privileged Christmas surprise that also do not incur any social security contributions.

Subsidize Christmas vacation

Many employees are looking forward to a few relaxing vacation days at the end of the year. Whether it's New Year in the mountains, at the Baltic Sea or trips to the surrounding area and relaxing in a leisure oasis. Recreation has many faces, but also costs a lot. This is where employers can help with a flat-rate taxed recreation allowance. Up to 156 euros for employees, 104 euros for spouses and 52 euros for each tax-eligible child are possible. And all net without deductions. Employers then pay the 25 percent flat-rate wage tax plus solidarity surcharge and, if applicable, church tax. Social security contributions are not payable if the flat-rate tax is levied and paid in the payroll accounting period in which the recreation allowance is paid.

Christmas gifts for coworkers

Even a Christmas gift can be given tax-free or taxed at a flat rate. Gifts (not cash!) with a value of up to 60 euros are tax-free without further examination due to a fairness regulation by the tax authorities. However, this only applies if employers give these to their employees as part of a Christmas party and the expenses incurred by individual employees (party + gift) do not exceed the current tax-free allowance of EUR 110 for company events. In the case of gifts whose value per employee exceeds EUR 60, it must be examined on a case-by-case basis whether they are given „on the occasion“ or „only on the occasion“ of a company event.

If the celebration does become somewhat more expensive, employers can tax the excess amount at a flat rate of 25% wage tax plus solidarity surcharge and, if applicable, church tax. Social security contributions are not due if the flat-rate tax is levied and paid during the payroll accounting period of the celebration.

Tip 3: Shaping the effects of the minimum wage increase

At its meeting on June 27, 2025, the Minimum Wage Commission decided to increase the statutory minimum wage as follows

On January 1, 2026 to 13.90 euros gross per hour
On January 1, 2027 to 14.60 euros gross per hour

The decision still needs to be implemented in a legal ordinance. From an employment law perspective, employers need to check whether employment contracts and, in particular, the number of working hours for mini-jobbers need to be adjusted via amendment agreements. This is because the low income threshold will also automatically increase from 556 euros to 603 euros.

From a business perspective, you should check how the additional wage costs will affect your company's earnings situation in order to adjust the costing of your products if necessary. Personnel planning should also be examined. Does it make sense to create one midi job instead of two mini-jobs? Employees in the flexitime zone do not immediately have to pay full social security contributions. The planned active pension also opens up new opportunities. With a tax-free allowance of 2,000 euros per month, employees could be an alternative to the classic midi job once they reach the standard retirement age.