The new home office allowance

Tax deduction of labour costs

The Corona pandemic changed everything - our entire everyday life: when and how we shop, who we meet and where, how we spend our free time and travel, and also how we work and where.

The pandemic brought the term "home office" into focus - in no previous year was it used and discussed as frequently as in 2020. Behind the Anglicism is the word teleworking, which is a flexible form of work in which employees do all or part of their work from their private environment.

Already used by some before 2020, teleworking allows many millions of workers not only to reduce the contagion of Covid-19, but to easily combine family and work, to manage their time freely, and to eliminate the need to travel to work. However, in addition to the numerous advantages that make the home office popular with many workers, it is also associated with disadvantages such as social isolation, a poorer flow of information or even a more difficult separation of private and work life.  Likewise, access to private resources results in higher costs (heating, electricity, telephone), especially in the winter months - calculations by the comparison portal Verivox show a 4 percent increase in the heating requirements of a sample household in a home office.

Home office offers both advantages and disadvantages
Home office offers both advantages and disadvantages.

The controversial issue of the home office

The question quickly arises as to whether costs incurred for the home office can be deducted for tax purposes. Up to now, it has been possible to have the costs for a home office recognised by the tax office - if it is a separate room that is used almost exclusively for business purposes. But what does "almost exclusively professional use" actually mean? The Federal Fiscal Court ruled in 2016 that expenses for "a room that is integrated into the domestic sphere and a not insignificant part of its area is also used privately" can be taken into account in the tax return as business expenses or income-related expenses. 

So not all home offices are the same - the home office is only recognised for tax purposes if it is an enclosed room furnished like an office and used almost exclusively for work. According to Uwe Rauhöft of the Bundesverband Lohnsteuerhilfevereine (BVL) in Berlin, the rule of thumb is: 90 percent of the use should be approximately professional and only 10 percent private. If the quite complicated requirements are met, the taxable income can be reduced by up to 1,200 euros per year. Additional costs for office furniture are taken into account separately, but are associated with further, much stricter requirements and regularly cause disputes with the tax authorities.

The new home office allowance

Thus, a major point of criticism is obvious: many employees do not have a separate study that is officially recognised. Due to the Corona pandemic, many had to and still have to work in an improvised home office - whether in the living room, at the kitchen table, in bed with the laptop on the lap - true to the motto "necessity is the mother of invention". Apart from increased electricity costs, those affected have so far been able to declare only little in their tax returns.

In order to provide further tax relief for workers who resort to the home office but do not have a separate office, the idea arose to create a flat-rate tax allowance of 5 euros per day, up to a maximum of 600 euros per year. It is also intended to compensate for the commuting allowance that is no longer paid for many employees. According to CSU finance politician Sebastian Brehm, this so-called "home office lump sum" is a flexible, unbureaucratic and easily comprehensible answer to the previous encrusted jurisdiction on the home office. On 9 December last year, the Federal Ministry of Finance passed an amendment to the draft annual tax law submitted by the federal government at the request of the coalition. This includes various changes, among others the aforementioned lump sum, which will be granted in 2020 and 2021 if the work activity was carried out exclusively in the domestic flat.

The Taxpayers' Association, which called for tax compensation for home office workers, welcomes the idea and considers it a good approach. Nevertheless, there is a catch: the home office allowance is offset against the advertising costs (employee flat rate) of 1,000 euros. This means that anyone who does not exceed the employee lump sum of 1,000 euros per year with the home office lump sum has no advantage from the new regulation. Only those who already have high income-related expenses will benefit. According to the Federal Ministry of Finance, a home office lump sum independent of and in addition to the employee lump sum is legally questionable.

Experts assume that the home office lump sum will not be sufficient for taxpayers who otherwise have a longer commute than 15 kilometres per day to avoid additional tax payments. The reason for this is the 600-euro cap on the home office allowance.

The home office allowance can be deducted for tax purposes via the advertising costs
The home office allowance can be deducted for tax purposes via the advertising costs.

Conclusion on the home office allowance

In principle, the idea and implementation of the home office lump sum is a good approach, which is much more flexible and tangible for many employees than the concept of the home office, since the Corona pandemic often means that sporadically set-up workplaces have to serve as home offices. But for commuters who now work from their home office, it will usually not be enough to compensate for the loss of the commuting allowance. In Germany, commuters travel an average of 17 kilometres - in federal states such as Mecklenburg-Western Pomerania, Brandenburg and Saxony-Anhalt, the average is even more than 30 kilometres, which means a compensation of only 50 percent.

However, one should not be discouraged by this - according to the advice of the Bund der Steuerzahler (Taxpayers' Association), it is worthwhile to regularly document the domestic workplace with photos. The income tax assistance association Vereinigte Lohnsteuerhilfe (VLH) also advises collecting detailed records and evidence of the use of the home office and, in preparation for the tax return, to think carefully about which costs can be deducted from the home office during the corona period.