What Will Cafeteria Bonuses Look Like in 2019?
The latest tax code, ratified by the Hungarian Parliament in November massively changes the country’s popular “cafeteria” system. Companies will need to completely transform their packages, focusing on the few items that remain tax-exempt.
The term cafeteria refers to a number of coupons, vouchers and bonuses (ranging from food coupons and gift cards to payments into private health insurance funds or student loan repayment) that could be paid to employees tax-free (disregarding the 41% tax imposed on all income, as long as the value of the bonuses does not exceed a certain amount per year).
Because of this, cafeteria has proved a popular option to complement regular wages, as employers could give additional compensation without being burdened with increased taxes.
This, however, changed with the new tax code that came into effect on January 1. The code imposes new burdens on most cafeteria items; while employers will still be able to pay up to HUF 450,000 in cafeteria items, most will be burdened with up to 40.71% tax regardless of value, raising the full tax rate (including taxes of employers and employees) of cafeteria payments to over 81%, the same tax rate as regular wages.
Such items will immediately lose their function, as the only reason for giving them as regular bonuses was their tax-exempt status. Items that are no longer tax-exempt include the so called Erzsébet coupons, a common food coupon that was included by almost every employer as part of their cafeteria package.
In December, the issuer of the vouchers, announced that once the new tax code takes effect, they are discontinuing Erzsébet coupons (coupons still in circulation can still be used until the end of 2019).
The following items will also lose their reduced tax rate and may also disappear completely:
• payments into housing funds,
• payments into rent funds,
• partial repayment of employees’ student loans by the employer,
• “starting school support” payments, bonuses given to employees to help them buy school supplies for their children
• various gift cards
Retirement and Health Insurance
One of the most important changes in the cafeteria system is the new tax imposed on private retirement and health insurance fund payments. This option had been one of the most popular cafeteria items: in 2018, 13% of all cafeteria payments went to such funds. In 2017, 63% and 68% of cafeteria recipients received tax-free payments into retirement and health care funds, respectively.
As Dr. Zsófia Horváth, secretary general of the Association of Private Care Funds (ÖPOSZ), explained to the Budapest Business Journal, the tax benefit for this kind of payment is significantly reduced this year.
“Despite the changes in the tax code, employers’ assistance to employees’ retirement and health funds will remain one of the best cafeteria items,” said Horváth.
“From 2019 employees can request a tax write-off. This way, receiving payments into self-care accounts will be more economical than getting the same amount as a wage.” As she explained, the 33.5% new tax on employees will overall reduce the value of the item; however, this is partly balanced out by the aforementioned option for a tax write-off.
With everything taken into account, employees can save 10% in tax if they chose this option. According to Horváth, there are two ways an employer may give self-care assistance as a cafeteria item. The first form is called “self-care fund contribution and donation” and is taxed at the same rate as wages; however, employees can request a 20% tax write-off.
After the second one, known as a “targeted service”, employers have to pay an increased 40.71% tax; however it is fully tax-exempt for the employee. The downside is that the use of this fund is more limited: instead of a personal account, payments are collected in a company fund, from where all partners can request assistance for certain services, such as medical treatment or buying medication.
SZÉP Card Payments
Cafeteria also includes payments made into an employee’s Széchenyi Relaxation Card (SZÉP card for shot), a pre-paid card, issued by banks and divided between sub-accounts, that can be used to cover travel and hotel expenses and various other recreational services. Bonuses placed on SZÉP cards will remain tax-free for up to HUF 450,000 for private companies. Employers may pay more than that, of course, but they will have to account for 40.71% tax.
The detailed quota for SZÉP card payments is as follows:
• Hospitality subaccount: HUF 150,000 of tax-free payments per year allowed
• Accommodation subaccount: HUF 225,000 of tax-free payments per year allowed
• Leisure subaccount: HUF 75,000 of tax-free payments per year allowed
While the “starting school support” will no longer be tax exempt, parents with children in kindergarten or nursery may still receive tax free bonuses. Another form of bonus that retains its tax-exempt status is what was commonly called “football game cafeteria” in the press. Employers may still give tickets to sporting events, theaters, museums or concerts tax free.
In conclusion, there will be very few options for cafeteria next year compared to 2018, and employers are required to completely transform their cafeteria packages if they want to continue saving on taxes.
It is entirely possible to exhaust the HUF 450,000 limit solely using the SZÉP card options and it is likely that the majority of cafeteria payments next year will be SZÉP card-related.
Another option that will still be somewhat economic are payments to private self-care funds – although the tax benefit for these will not be as great as for SZÉP cards, the option of the 20% tax write-off will still make this item a viable alternative.
These packages might be complemented with benefits supporting child care for pre-school children and the occasional sports or theater ticket.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.