Taxed allowances vs. untaxed allowances: what's the difference?
With a taxed allowance, the employee pays tax on it. With an untaxed allowance, they don't.
Taxed allowances (gross)
- Wage tax and social premiums (payments to programs like social security) are taken out of this amount.
- This means the employee actually receives less than the full amount you entered.
Untaxed allowances
- No wage tax or social premiums are taken out.
- The employee receives the full amount you entered, exactly as it is.
Before you use an untaxed allowance
You can't just pay any allowance untaxed. It's only allowed in certain situations.
Usually, you'll also need proof that the employee is genuinely making the costs you're reimbursing them for.
Not sure if your situation qualifies? Ask your adviser what's allowed in your jurisdiction (the country or territory whose tax rules apply). The rules can differ from place to place.