Back-to-school support as fringe benefit

Employers may give employees back-to-school support in order to lessen the burden on parents at the start of the new school year in September. Considering the size of support that can be given with preferential tax, the back-to-school support can be of great help to families for purchasing text books and equipment to start the new school year.

Pursuant to Section 71 (1) e) of the Act on Personal Income Tax, the portion not exceeding 30% of the minimum wage paid by the payer (employer) to the employee per child (student) shall qualify as a fringe benefit paid as back-to-school support. In this respect, the employer may give a back-to-school voucher with preferential tax per child and parent up to an amount of HUF 29,400 (i.e. 30% of the minimum wage). Both parents are entitled to receive support for children of school-age, therefore the employer may support the start of the new school year for one child up to an amount of HUF 58,800.

Only the employer is subject to tax on the fringe benefit; the amount of preferential tax comprises 16% personal income tax and a 14% health care contribution payable on the amount of the fringe benefit multiplied by 1.19.

Section 71 (6) g) of the Act on Personal Income Tax defines what qualifies as back-to-school support. Accordingly, back-to-school support with preferential tax can be provided for a child who takes part in (elementary or secondary) public education (or the equivalent in any EEA state) and who has not exceeded the age limit entitling them to family allowance. A further precondition is that the recipient of the support must be an employee of the provider who is a parent, a guardian, or a spouse living in the same household as such parent or guardian entitled to family allowance (or a similar allowance based on a similar law in any EEA state) in connection with the child referred to above. As a result, the preferential taxation conditions are only fulfilled in relation to the parent entitled to family allowance or their spouse living in the same household.

Additionally, in order for the employer to claim preferential taxation they must have a statement from the employee that they comply with the above conditions. For fringe benefits that exceed HUF 29,400 (30% of the minimum wage) but otherwise comply with the above conditions, 16% personal income tax plus a 27% health care contribution on the excess multiplied by 1.19 must be paid by the employer. The employer must consider the same level of taxes and contributions if the aggregate amount of fringe benefits exceeds HUF 500,000 in the case of the given employee.

As of 2013, employers may only give the back-to-school support in the form of (printed or electronic) vouchers. It is no longer possible to settle finances in exchange for a relevant invoice. However, it is still important that vouchers must be used to buy text books, school equipment and clothing from the 60th day prior to the start of the school year up until 31 December.

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