Tax-free subsidies for local and long-distance public transport journeys

Since January 1, 2019, employer allowances for travel by public transport on scheduled routes (excluding air transport) between home and the first place of work (1st alternative) and for travel on local public transport (2nd alternative) have been exempt from income tax and social security contributions under Section 3 No. 15 of the German Income Tax Act (EStG) if they are paid in addition to the salary owed anyway; the same applies to the free or reduced-price use of such means of transport. These tax-free benefits reduce the deductible commuting allowance for employees.

Whereas in the 2nd alternative all journeys – including private journeys – on localpublic transport are eligible, the 1st alternative only applies to journeys between the home and the first place of work using regular public transport (meaning long-distance passenger transport). Insofar as the tickets subsidized or provided by the employer (e.g. monthly pass, annual pass, BahnCard 100) also enable purely private journeys, the non-cash benefit accruing thereon may be subject to tax and social security contributions.

In an application letter, the tax authorities comment on this in detail: The decisive factor for the allocation of subsidies for long-distance passenger travel is a forecast of the extent to which, for example, the BahnCard 100 provided “pays for itself” for the employer. The costs for business trips are included with the saved costs for individual tickets.

If the forecast in Example 1 proves to be too high or too low, the assessment remains in place; no subsequent taxation or other apportionment takes place. A correction is only made if the underlying assumptions change fundamentally, e.g. when the employee changes from field service to office service.

If an amortization forecast is waived, the provision of a BahnCard 100, for example, initially constitutes taxable income in full. The business travel expenses saved and the preferential expenses for travel in accordance with Section 3 No. 15 of the German Income Tax Act (EStG) are then deducted from the taxable salary as a correction amount at the end of the calendar year (or at the end of the validity of the BahnCard).