Today, there are delivery services like there is sand by the sea: if you want to order a large pizza or a juicy burger from the comfort of your home, you are spoilt for choice. Whether there are blizzards, thunderstorms or a heavy rain, the delivery staff won’t be put off and your food will still arrive quickly to at your door. Many customers give a little tip as a token of their gratitude. In Germany, it is said that at least 10 percent of the purchase price is appropriate.
Many industries are dependent on tips because, despite the minimum wage at the end of the month, hardly anything remains. As a result, being generous and giving a little extra does not only make the recipient happy, but also yourself. The question arises, however, as to whether tips are always tax-free or whether that extra money has to be taxed.
Differences between the recipients
There are significant differences between employees and entrepreneurs. In principle, employees can accept tips and do not have to pay taxes on them, whereas entrepreneurs have to record the tip as operating income.
From a tax point of view, there are 3 groups that are relevant:
- Employees receiving tips
- Entrepreneurs receiving tips
Recipient is an employee
If an employee receives a tip, it is automatically included in the wage. This is regulated by Section 19 of the Income Tax Act (Einkommensteuergesetz). This includes not only tips, but also all benefits from third parties.
Tips are exempt from tax regardless of the amount they are paid. Therefore, there is no limit on the amount.
Tipping is tax-free only if
- it is paid by third parties (customer gives employee money directly)
- the payment is made voluntarily, otherwise they are subject to income tax and social security contributions (Lohnsteuer- und Sozialversicherungspflicht)
- a legal claim is waived (Verzicht auf Rechtsanspruch)
- it is additionally handed over as a supplement to work performance (additional remuneration)
Recipient is an entrepreneur
Tax exemption (Steuerfreiheit) exists only if the recipient is an employee. Unfortunately, entrepreneurs do not benefit from this. Rather, they must record tips received as operating income (Betriebseinnahmen). So anyone who is self-employed cannot accept tax-free tips.
It is also important to know that the remuneration is subject to VAT (umsatzsteuerpflichtig). This means that the tax office also gets a piece of the cake. It is highly advisable to keep a record of the tips received. If a tax audit is carried out, particular importance is attached to this income.
What tippers need to know
The most important factor for tip providers is whether they are tipping entrepreneurs or private individuals. Entrepreneurs may have to record tips as business expenses (Betriebsausgaben). It may then be necessary to prove this accordingly.
Such evidence shall be admissible
- Tip recipient acknowledges receipt of the money
- Own document is issued (Eigenbeleg)
The problem here is that restaurant operators, for example, have to show the tip separately. As a result, the amount of the tip must be decided before the actual invoice is handed over. However, this handling is rather atypical. Therefore, it is more advisable to use your own receipt (Eigenbeleg). The prerequisite for this is that the charges have been arranged operationally and have actually been incurred.