Reimbursement of costs incurred while working from home

Authors: Lucie Javorová, Andrea Kleinová
During pre-pandemic period, the home-office regime used to be considered as an employee benefit. Nowadays, it has become practically a necessity. Therefore, it is not surprising that employers as well as employees are trying to address the issue of compensation for costs incurred by employees due to the performance of work from home (such as costs covering energy, internet, own work tools, etc.).

Is it even possible?

In accordance with current legislation, the dependent work (thus, the work of employees regardless of whether exercised based on the employment agreement or the agreement for work performance / work activity) is to be performed at costs and on behalf of the responsibility of the employer. Provided that all legal conditions are fulfilled, the employer is obliged to cover the employee´s costs resulting provably from the work performance, regardless of the fact whether performed at the employer´s workplace or at home.

What is the tax treatment?

The reimbursement of the employee´s costs related to the work performance is not subject to personal income tax on the side of the employee. Such costs borne by the employee cannot be included into the wage or the salary, since this is not a remuneration but solely the reimbursement of actually borne costs.

At the same time, they represent tax deductible costs on the side of the employer from the corporate income tax point of view.

At which amount?

It is decisive to correctly determine the amount of reimbursement of costs, since the amount higher than the actually inccurred costs would represent a benefit for employee and as such, a taxable income. On the employer’s side, such costs would not be considered as those to serve to achieve, secure and preserve taxable revenues and as such would be treated as tax non-deductible. At the same time, should the employee bear no costs related to the work performance outside the employer´s workplace (since no costs has occurred), there is no reimbursement obligation for the employer.

How to do it practically?

In general, the amount of reimbursement may be determined by two following methods based on:

          a) costs actually incurred and proven by the employee; or

          b) lump sum.

However, even in the case of lump sum, it is necessary to consider the actual costs, as it is possible to determine precisely the lump sum only based on them. If the lump sum would be grossly mismatched to the actual costs, such compensation could be considered either insufficient or, conversely, too high. This would lead to employee´s taxation and at the same time to tax non-deductibility by the employer.

Further, it is important to point out that to correctly determine the lump sum, it is decisive to correctly identify a type of costs since by the mandatory payments of the employer towards employees to create and keep working conditions for the work performance, the amount of reimbursement must be determined solely based on the proof of actually spent expenses by the employee. This includes e.g. expenses for heating/air condition, electricity, cleaning or internet expenses. In this case, the application of lump sum is not possible.

To sum up, the lump sum reimbursement provided by the employer for the employee's work from home is quite problematic from a tax point of view. It is not possible to determine an “universal coefficient” which could be applied to all employees without differences and doubts and it is for sure necessary to go more in depth for practical application.

If you are considering reimbursing your employees’ costs in connection with the performance of their work from home, we will be pleased to provide you detailed tax advisory on this issue in order to minimize tax related risks and thus, to avoid the resulting sanctions.

Contact our expert

Andrea Kleinová
Andrea Kleinová
Certified Tax Advisor

Tax Advisory