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ou got a job offer where benefits in addition to the base salary are contemplated but don't know if they are tax free? Do you have questions about whether a certain benefit is subject to Personal Income Tax or Social Security discounts?
The answer for these questions depends on the benefit your company provides. In fact, there are salary supplements that are free from all kinds of tax. And this means that, regardless of the amount, they are exempt from Personal Income Tax and Social Security.
Still in the exemption category, there are complements that have a maximum ceiling, that is, they can only be tax exempt up to a certain amount. If this amount is exceeded, they will be taxed. However, there are also some partially exempt or non-tax exempt benefits.
If you're wondering which benefits fall into each category, read on - we'll show you some examples!
Flexible tax-free compensation
Within the category of fully tax-free flexible compensation there are childcare vouchers and benefits that cover the payment of expenses with the transport card, professional development training and healthcare.
In what comes to the childcare voucher, employees can pay expenses related to their children's schools up to the age of 7 (excluding).
But how does this voucher work? Actually, that will depend on the company that provides this service. With Coverflex, for example, the payment is made directly through the app. This way, a voucher is generated, which will be sent to the educational institution.
As for the flexible benefits associated with expenses with the transport card, professional development training and healthcare, the logic is the same. For example, let's assume that your company grants 100 euros in add-ons of your choice from a range of available options. The amount you spend on expenses (fitting your activity) with a transport card, professional development training or healthcare is not subject to taxes, as long as it does not exceed 100 euros.
What about the meal card?
If you're wondering why the meal card doesn't fall into the previous category, let us clarify this. Although most companies pay the meal allowance in a way that it is tax free, this does not mean that the meal allowance is totally tax exempt.
What happens is that the meal allowance is only exempt in the following situations:
- When paid in cash, up to 5.20 euros per day;
- When paid through a meal card, up to 8.32 euros per day.
If your company pays 8.32 euros per day on a meal card, this amount is actually tax exempt (Social Security and Personal Income Tax).
But the scenario changes if your company pays a higher amount. Let's imagine that you receive 8.50 euros of meal allowance in your meal card. In this example, 8.32 euros of those 8 euros are tax exempt. The remaining 0.18 euros are included in the calculation of payments to the Social Security and the Personal Income Tax. For this reason, it's not always advantageous to have a meal allowance higher than the legal ceiling. After all, even a small difference, such as the rise of the amount to a few dozen cents, can increase your Personal Income Tax withholding rate. And this rise could potentially affect your monthly net income pay.
Flexible compensation exempt from Social Security only
Your company may grant you other compensation in addition to your salary. However, the following options are Personal Income Tax deductible, even though they are exempt from the 11% Social Security rate. To give you an idea, we are talking about benefits that include the payment of:
- Monthly fees and expenses for gyms, fitness centres and fitness apps;
- Education and training expenses;
- Certain health and well-being expenses, either on your behalf or your family's;
- Nursing homes expenses;
So, when you receive this type of salary supplement, you need to add the benefit amount to the rest of your income. Only after adding up all the income subject to taxes do you understand the final amount that will be taxed.
Pay attention to the following: your taxation is based on the Personal Income Tax withholding tables for 2022. In order to find out what's the rate you are subject to, you have to consider not only your gross salary but also your tax framework. The tax framework changes according to the conditions of your household, such as if you are single or married, if you have children, etc..
The impact on net income
Bearing in mind that the different types of flexible compensation are taxed in different ways, there is nothing like showing the impact they have on net income.
Thus, the rate of Personal Income Tax a married person with a child, and a base salary of 1,000 euros, has to pay is 8.6% (and 11% of Social Security), which means they will have a net amount of 804 euros.
If the same person has a base income of 1,000 euros, plus 100 euros of flexible compensation that's not exempt of Personal Income Tax, the rate rises to 11.4%, which means that this person earns 865 euros net. If we are talking about a salary compensation exempt from all kinds of tax, the rate drops to the initial 8.6% and the net income increases to 904 euros.
As figuring out how much you'll be taxed on your earnings is not always easy, the use of a net salary simulator can help you to determine the final amount you will receive. You just have to understand if the flexible compensation that is being offered to you is tax exempt or not.
Other incentives and their taxation
Although flexible benefits are one of the most popular types of compensation beyond salary among companies and employees, your contract may provide for other types of incentives, allowances and bonuses. And in these circumstances it is important that you know whether or not you will pay taxes on this income.
In case your contract provides for professional travel, you may or may not benefit from the travel allowance. The travel allowance works like the meal allowance, as there are tax-free amounts up to a certain limit and the surplus is subject to Personal Income Tax and Social Security.
So, if your company pays a travel allowance to cover gas bills, toll payment, etc., the maximum exempt amount is 0.36 euros per kilometre. For traveling within Portugal, the fixed limit is 50.20 euros per day and in international travel it rises to 89.35 euros per day.
But your company can also compensate you through prizes throughout the year. However, this is subject to tax. For example, if your company decides to award you cash prizes, these amounts will be added to your taxable income. Therefore, they are subject to the payment of 11% of Social Security and your withholding Personal Income Tax (which may be increased with the amount of the prize).
The most important thing is that you know the impact that certain benefits and incentives have on your net income. Also, if you are in a recruitment process, you can try to negotiate the most attractive benefits for you and that will increase your net salary in 2022.
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