With an employer loan, employers bind their employees even more to their company. In this way, companies can give their employees a monetary benefit even without a direct salary increase. However, a current BMF letter clarifies that the non-cash benefit of an employer loan results from the difference between the market interest rate and the interest rate that the employee has to pay in individual cases (Az. IV C 5 – S 2334/07009). The decisive factor is the interest rate agreed during the entire contract term since the contract was signed. The only exception is the agreement of a variable interest rate. The employer loan is therefore not a consideration for the work performed by an employee.
Another option for which employer loans are granted is to promote and finance further training measures for the employee or even to acquire residential property. On the other hand, it is not permitted to grant a loan to finance company-made products. Employer loans must also legally withstand, for example, precise agreements on terms, interest, repayment and collateral must be made. Anyone who makes mistakes in the contract drafting as an entrepreneur and lender must expect that the entire loan is to be recorded in full as taxable wages. Among other things, this should also rule out that the employer waives the repayment of the loan – for whatever reason.
The terms of the employer loan vary from employer to employer. In most cases, the conditions depend on the length of service, earnings or position in the company. An employer loan is therefore a certain sign of trust for an employee, as this will secure the job for the foreseeable future. So anyone who has the chance to benefit from an employer loan should take advantage of this. Because this is not just a low-interest financing, in most cases there are no processing fees. In contrast to a salary increase, of which there is little left in the end, this loan represents an advantageous advance on wages, which is also reduced in interest.
In this way, both parties benefit, because depending on the employee’s personal tax rate, this can mean considerable savings, while the company does not have to pay social security contributions on this loan. So if you are interested in an employer loan, you should contact the HR department, the works council or, in smaller companies, the managing director. Anyone wanting an employer loan as a builder should apply for this in good time, because experience has shown that companies cannot decide on them overnight. In order to avoid that the employer loan must be taxed as wages, a written draft is recommended as the legal basis. As a prerequisite, the following must be stated in the contract:
- the effective interest rate
- the period
- the loan amount
- the repayment modalities as well
- the corresponding termination options
If even one of these details is missing, the employee must pay full tax on the entire loan. A lack of a repayment agreement always raises the suspicion of a hidden payout. In the case of an employer loan, a distinction is made between the money loan (regulated in §§ 488 – 512 BGB) and the property loan (regulated in §§ 607 – 609 BGB). The training loan, on the other hand, is a special form.
Furthermore, the interest benefits are not taxable as benefits in kind by the employee if the sum of the loan not yet repaid does not exceed $ 2,600 at the end of the wage payment period. A loan is therefore roughly comparable if it essentially corresponds to the employer loan, in particular with regard to the type of loan, term and duration of interest.
Employer loans are mainly offered in the public sector, in the financial sector, but also in all other sectors. This financing variant is issued as a consumer loan or as a real estate loan. In the case of real estate loans, it is common to enter a land charge on the financing object. The loan is generally repaid in fixed installments in advance and directly as a wage deduction. The lender – here the employer – only has to comply with the seizure limits to be observed by law. It should also be noted that both advances and installments do not constitute employer loans! In most cases, employer loans are also earmarked, for example for further training measures or for property purchases.
Employer loans do not provide a job guarantee for an employee, but they are a positive signal for long-term employment. With the support of such a loan, the borrower as a future homeowner can also increase his share of equity. Because the capital comes from a relationship of trust, the banks add this money to equity. And the higher the existing equity component, the better the chances for the real estate financier for further favorable loan conditions.
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The taxable interest advantage
In the past, to ensure that an employer loan does not become taxable wages, the loan had to have an effective interest rate of at least 5.0 percent. However, the term of the respective loan is irrelevant. Currently, the wage tax liability for interest benefits from employer loans is only according to the in the BMF letter IV C 5 – S 2334/07 / 000928.3.2007, BStBl. 2007 I p. 502 principles to be assessed. Thereafter, the 5 percent rule may no longer be used as the basis for setting interest rates. In the future, the average rates for housing and consumer loans published by the Best Bank or other direct banks will be a guide for the standard market loan conditions. A discount of 4 percent may then be made.
If the employer leaves the loan at a lower interest rate, a taxable interest advantage arises. This results from the difference between the agreed interest and the minimum interest. However, this interest rate advantage is not subject to taxation if the remaining debt of the employer loan at the end of the wage payment period is less than 2,600 USD (this exemption limit was first abolished by decree, but was then reintroduced retrospectively on January 1, 2008!). If several employer loans are granted to an employee, this interest advantage must generally be determined separately for each loan. In addition, there is the small amount regulation according to § 8 paragraph 2 EStG, ie the benefits from benefits in kind are not subject to wage tax even if the monetary benefit does not exceed a total of 44 USD including sales tax per month. Example:
|loan amount||40,000 USD|
|Fixed interest rate employer||3.4% *|
|Bundesbank interest rate targets||4.7%|
|Annual / monthly fee||520 USD / 43.33 USD|
|Exemption limit 44 USD||If not exceeded, loan can be given to the employee
be made tax-free.
* Only the conditions on the day of the agreement are decisive for tax purposes. However, these then apply for the entire term of the employer loan.
On the other hand, when calculating the monetary benefit, it is irrelevant whether it is an old loan or a newly concluded contract. Recently, employers have also been able to use Internet providers’ significantly lower interest rates as a comparison. However, if there are significant changes in market interest rates within the term of the contract, both parties should consider repaying the loan and entering into a new contract. So-called appeal information according to § 42 e EStG can be obtained from the responsible company tax office due to issues relating to the tax treatment of employer loans.
If the interest terms of the same loan agreement are agreed again with the employee after the interest rate has expired, this interest advantage must also be determined again. If the non-cash benefit from the provision of an interest-free or low-interest loan according to Section 40 EStG is taxed at a flat rate at the request of the employer, the interest advantage must only be assessed according to Section 8 (2) EStG. Example:
|The amount of an employer loan amounts to 16,000 USD, the chosen term is 4 years. Both the repayment and the due date of the interest are made once a month. The employer’s effective annual interest rate is set at 2 percent.|
|variant||Consumer credit, initial
Fixed interest rates of over 1 to 5 years
|dto., but also from the Best Bank
published effective interest rate
|interest rate||5.10%, determined by employers||5.68%, specified by the Bundesbank|
|Discount (4%)||not possible||0.23% (4% of 5.68%)|
|interest rate||5.10%||5.45% (5.68% – 0.23%)|
|discounted interest rate||3.10% (5.10% ./. 2%)||3.45% (5.45% – 2%)|
|Non-cash benefit (month)||$ 41.33 ($ 16,000 x 3.10%: 12)||$ 46.00 ($ 16,000 x 3.45%: 12|
|Exemption limit (44 USD)||Interest rate reductions are tax and contribution free||Interest rate reductions are subject to tax and contributions|
If the parties have not agreed an interest rate, the legally customary interest rate is deemed to have been agreed. If, on the other hand, the loan is deliberately interest-free, it must be contractually agreed between the parties. If the employee’s interest rate advantage is less than EUR 1,000 pa, the employer can also tax it at a flat rate, so that there is no burden on the employee. However, if the interest advantages go beyond the 1,000 USD limit, they must be taxed individually by the employee.
Special regulations applicable to staff discounts
Special rules apply to banks, insurance companies and all employers whose business activities include lending. In particular for employees who work for a bank that lends to customers in the ordinary course of business, the interest rate advantage is assessed as a so-called personnel discount and is also taxed in accordance with the BMF letter (BStBl. 2008 I p. 892 item 14) The effective interest rate that the employer also offers his bank customers for comparable loans applies to the interest rate advantage, and a valuation discount of 4 percent may be applied accordingly.
Here, too, it is possible for the employer to pay tax on the interest rate benefit to his bank employees instead of the personnel discount regulation in accordance with Section 40 (1) EStG. Flat-rate taxation is only exempted from a monthly interest payment, and here too it can only be applied to an interest advantage of a maximum of EUR 1,000. If the interest advantage is above this limit, then the personnel discount rule must be applied again for the excess amount. If the loan amount is not more than 2,600 USD, it is a small loan, which is why the interest advantage is tax-free (BMF letter, BStBl. 2008 I p. 892 no. 3). The tax exemption applies even if the employer completely waives the interest.
The advantages and disadvantages of an employer loan
Most companies give so-called subordinated loans to their employees. These are also entered in the land register if the amount is appropriate. With smaller sums, however, assignments of wages and salaries are sufficient as security for the employer. There are also differences in the distribution of the amount of the loan, which ranges from 5,000 USD to a substantial part of the debt. As a rule, the loans are between a range of 10,000 and 50,000 USD. If the employer makes a first or second-level entry in the land register due to the amount of the disclosure, this can also have a disadvantage for the employee. Because these ranks are then blocked for further and employer-independent debt. Another disadvantage is the repayment rate, which is usually significantly higher than that of bank loans. In addition, this loan binds employees to their employer. If the employment relationship is terminated, the respective part of the contract decides under which conditions the contract continues or whether an immediate repayment is possible. In many cases, employer loans can also count towards severance payments.
Companies that grant employer loans must pay particular attention to the principle of equal treatment for their employees. For example, part-time employees of a company should not be treated worse than full-time employees. Furthermore, the loan contract can only be terminated by termination, but leaving the company does not automatically lead to the termination of the contract. Companies that want to cancel an employer loan have a 3-month notice period in accordance with Section 488 (3) BGB. If, on the other hand, small loans up to an amount of EUR 200 are involved, one month must be observed as a notice period. Once this period has expired, the employer has the option of claiming back the outstanding loan amount. Furthermore, he has the option to adjust the previously low interest rates to those on the market.
Employees should make sure that an agreement is made in the loan agreement in the event of termination. It should not matter who did the termination of the employment relationship. If there is no such agreement, the loan can be made due immediately in the event of termination, ie the employee has to pay the outstanding loan amount overnight. If the loan was then taken out for real estate financing, this can lead to considerable problems, since the employee would now have to find a new lender for the debt rescheduling. So that the termination does not become an incalculable risk, a regulation on the new interest rate should be found after a possible termination of the employment contract.
However, immediate repayment claims and excessive interest claims by the lender are also inadmissible in the event of an operational termination. However, the agreement of market interest is permissible. Immediate repayment agreements are to be regarded as inadmissible according to the highest judicial case law, if it is a job-related dismissal or if the employee terminates extraordinarily because the employer has set an important reason for this.
A special form of employer loan: the training loan
Young people who complete an apprenticeship in particular are often only paid a small amount, but on the other hand, they also have costs that should not be underestimated (travel costs, material costs, etc.). In addition, the livelihood should be secured during the training. Anyone who is unable to start another job here is dependent on outside capital. So-called training loans, which are offered by employers or the Lite Lender, are helpful. Training loans are used exclusively to finance training, further education or university studies. The advantage of the training loan is that it is not granted – as opposed to the Credit Aid (state funding) – depending on income. In contrast to the Credit Aid (federal funding), training credits have to be repaid in full.
Another disadvantage of the federal training loan is that payment is only possible in later training phases, which is why an intermediate examination must be taken before this financing option takes effect. The amount of credit that is paid for each training section is also not high, it is just 7,200 USD. If you want a normal training loan, you have the choice between two different financing approaches: the classic installment and small loan model and offers with a monthly payment similar to the Credit Aid. With the installment and small loan model, the total loan amount is paid out in one sum. The borrower can then immediately start repaying the loan. In the case of offers with monthly payments, however, the loan amount is deferred until a few years after completing your studies. Only then must the borrower start repaying the loan.
The Federal Supply Office (BVA) also offers schoolchildren and students a special educational loan program in this context. You have the option of a simple, low-interest and flexibly adjusted loan, regardless of income and assets. This educational loan is available to both German and foreign students. A prerequisite is the age of majority, the maximum age for the payment of the educational loan is limited to a maximum of 35 years, and the training must also be eligible under the Credit Aid. The following also applies: the borrowers must start in the last 24 months of the training and the training must end with a professional qualification. The latter only applies if the borrower has not yet completed vocational training. Interested parties can find more information at www.bildungskredit.de.
All those trainees who complete an in-company or external apprenticeship in a recognized apprenticeship can apply for a vocational training grant. Those trainees who no longer live at home are also entitled because they are no longer able to drive home every day. Vocational training allowance is also given to trainees who are of legal age or married, no longer live at home or at least live with a child. In the event of an apprenticeship, those affected are entitled to funding under the Federal Education Promotion Act (Credit Aid). The Credit Aid office at the parents’ place of residence is responsible. Those interested can find the relevant information at www.bafoeg-antrag.de or www.das-neue-bafoeg.de. Students can also apply for Credit Aid. German citizenship, a corresponding suitability and a certain maximum age apply. The respective funding contribution is calculated as follows:
|Amount of need according to the Credit Aid||……………………………USD|
|less the apprentice’s income and assets||……………………………USD|
|less deductible income of the spouse and parents||……………………………USD|
|Funding amount according to the Credit Aid||……………………………USD|
Training through external financing
Especially when it comes to full-time training, apprentices have less and less opportunity to earn something. In many cases there are also individual training requirements, so that the trainee either has no or only a minimal monthly income. Training credits, so-called purpose-restricted loans, are suitable for this. In this way, an apprenticeship loan not only prevents a longer study period, but also ensures fewer tuition fees because you can now complete your apprenticeship more quickly. In addition to the cost factors during the training phase, there are also upcoming internships, expensive further training or even stays abroad. In many cases, however, trainees do not benefit from training or study grants, and not everyone receives a scholarship. Here is a student loan with low interest rates.
Studies are also becoming more and more expensive, because there are more and more schools or technical academies where training has to be financed out of one’s own pocket. The use of an apprenticeship loan seems reasonable here, because with every well-founded apprenticeship the chances of a lucrative job increase. To apply for a training loan, applicants must provide the bank with proof of the training they are completing and the amount of fees. In this context, it should be noted that most banks only approve a sum of funding here, namely in the amount of the actual school or study costs. After finishing school or university and starting their professional life, the borrower must start paying the installment including interest.
It is important that the borrower agrees an appropriate waiting period between completing the training and starting the repayment with the credit institution. This offers a certain security in the event that employment does not take place immediately after school or university. Borrowers should also agree to make special repayments in addition to their fixed repayment framework. Many earn very well after completing their advanced training, so they should take the opportunity to trigger their loan early. Training credits are available to finance training, further education or to study. Training or student loans are granted by banks and are independent of the borrower’s income and the assets of the parents.
The advantage of an apprenticeship loan can also be seen in the fact that borrowers can do without a time-consuming part-time job during their studies, which can therefore significantly shorten the apprenticeship or study time. The same applies to costly learning materials or tuition fees, these expenses can also be financed through a training loan. In addition, for most of those who choose further training through the second path of education, it is only sustainable if it is financed through a training loan. Anyone applying for an apprenticeship loan should determine exactly what they want to finance. The exact duration of the training or further training measure should also be clarified. The required capital must now be calculated from these two points.
Important: Of course, all work equipment must also be included in this capital, because it is not possible to extend the loan amount during the study period if there is no capital. After the required loan amount has been calculated and the term has been determined, important comparisons can be made. In addition to the state offers, only a bank’s training loan is then an option. This applies in particular to training occupations for which no funding is available. In addition to the loan amount and the term, the terms of repayment must also be compared. The same applies accordingly to all interest and fees incurred, since even with a term of several years, even minor differences in the annual effective interest rate are significant. The repayment period usually varies between 60 months and periods of more than ten years. Special repayments should be possible without additional costs.
Apprenticeship loans are also exciting from another point of view, because most credit models do away with the otherwise mandatory check procedures such as creditworthiness and Credit Bureau inquiries. Anyone who is able to hold negotiation talks with the bank employee can also take advantage of benefits – if only minimally. As a bank customer, the student or trainee should be able to make clear specifications for all of these points, because only then can one be sure that there are no surprises. All accruing interest on a training loan can be deducted from the tax as advertising costs / special expenses.
Borrowers should pay attention to tax benefits
Credit Aid repayments are neither deductible as advertising costs nor as special expenses (BFH, Az. VI R 41/05), since the repayment only repays an assumed debt. However, all costs incurred during a course of study are deductible. These expenses can then only be deducted for the year in which they actually arose (BFH, Az. VI R 41/05). However, the interest is taxable for a Credit Aid or student loan. Anyone who completes a first degree can claim these interest expenses as special expenses, with a second degree as advertising costs. In addition to the course and tuition fees, the training costs also include all expenses for textbooks, learning material, accommodation costs as well as additional catering expenses for accommodation abroad. The distance between home and training center is paid with a flat rate of 30 cents per kilometer.
The training loan, on the other hand, has no influence on the child benefit for children of legal age. As a rule, parents only receive child benefit for their adult children when they are studying or in training. Also, the child’s income or remuneration may not exceed the amount of 8,004 USD (as of 2011) per calendar year. However, training loans may not be included in the determination of this maximum limit, since a loan payment does not ultimately lead to an increase in income. In addition, all additional training-related expenses such as tuition fees or book expenses can be deducted from the remuneration of the adult child, but not the repayment of the training loan. Social security contributions, business expenses, advertising costs and all additional training-related expenses may also be deducted from the student’s remuneration (BFH, Az. III B 70/09).