Salary Conversion (Entgeltumwandlung)
Salary conversion allows employees to exchange gross salary for a tax-free benefit like the Deutschlandticket – saving on income tax and social contributions for both sides.
What is Salary Conversion?
Salary conversion (German: Entgeltumwandlung) is a tax model where employees convert part of their gross salary into a non-cash benefit – such as a Deutschlandticket. The converted amount is exempt from income tax and social contributions, saving money for both the employee and the employer.
How It Works for the Deutschlandticket
| Item | Amount |
|---|---|
| Conversion amount (gross) | €63/month (full price – maximises SV savings) |
| Employee net cost | approx. €37.67 (≈ €38) |
| Employer SV savings | +€12.92/employee/month |
| Employer flat tax (§40 EStG) | −€10.21/employee/month |
| Employer net gain | +€1.71/employee/month |
| Service fee | €1/employee/month |
Example: Bavaria, €3,000 gross, tax class I. Indicative figures.
Legal Basis
Salary conversion for the Deutschlandticket is governed by §40 Abs. 2 S. 2 Nr. 1 EStG. The employer applies a flat tax of 25% on the converted amount, instead of the regular payroll tax.
Key Advantage
The tax benefit of salary conversion stacks on top of the €50/month non-cash benefit allowance (§8 EStG) – employers can still grant up to €50 in additional tax-free benefits each month.
Not tax advice. Please consult a qualified tax advisor.