Legal expenses insurance tax-deductible: How to secure your tax benefit
24/05/25
6
Minutes
Katrin Straub
Managing Director at nextsure
Many people ask themselves: Is my legal expenses insurance tax-deductible? The answer is yes, at least in part, and it can reduce your tax burden. Find out here how to correctly claim the business-related portion of your legal expenses insurance and save real money.
The topic in brief and concise terms
Only the occupational portion of your legal expenses insurance (employment legal protection) is tax-deductible as employment expenses or business expenses.
A certificate from the insurer confirming the tax-deductible portion is crucial for recognition by the tax office.
The entry is made for employees in Schedule N; for self-employed persons as a business expense.
Optimise the tax deductibility of legal protection insurance
The ability to make legal expenses insurance tax-deductible is an important consideration for many taxpayers in reducing their annual tax burden. In principle, only the portion of the insurance that covers professional risks can be claimed for tax purposes. For employees, this is typically employment law legal protection, which is claimed as employment-related expenses. Self-employed individuals can deduct their business-related legal expenses insurance as business expenses. Private portions, such as family legal protection or motor legal protection for private journeys, are generally not deductible. A precise review and allocation of the premiums is therefore crucial for tax success. This article guides you through the details.
Practical guide: How to correctly declare legal expenses insurance contributions in your tax return
To claim the business-related portion of your legal expenses insurance for tax purposes, the correct approach is crucial. It begins with identifying the deductible share and ends with entering it correctly in your tax return. Many insurers already show the share for employment law cover on the annual statement, which simplifies matters. If this is not shown, you should actively ask your insurer for a corresponding certificate. Without this proof, tax recognition is often difficult. Below, we explain the specific steps for employees and self-employed individuals and show exactly where the entries should be made.
Employees: using employment law cover as work-related expenses
For employees, the key point is that only employment law cover is deductible as work-related expenses. This part of the insurance covers, for example, costs for legal disputes with your employer, such as unfair dismissal claims or wage demands. You enter these contributions in Annex N of your income tax return. It is important to know that work-related expenses only reduce your tax bill once the employee lump sum of currently EUR 1,230 (as of 2024) is exceeded. If your total work-related expenses, including employment law cover, are below this, there is no additional tax benefit. A precise calculation of the business-related share is therefore essential.
Here is a sample list of what can count as work-related expenses alongside employment law cover:
Travel costs to work
Contributions to professional associations
Expenses for specialist literature
Costs for professional training
Expenses for work equipment
Many policyholders overlook that even small amounts for employment law cover can help push them over the lump-sum threshold. So check your insurance documents carefully. The next section covers the situation for self-employed individuals.
Self-employed individuals: deduct business-related legal cover as operating expenses
Self-employed people and freelancers also have the option of claiming their legal expenses insurance for tax purposes, provided it is incurred for business reasons. Unlike for employees, these costs are not treated as work-related expenses but as operating expenses. Operating expenses directly reduce the taxable profit of the business or self-employed activity. This can be, for example, business legal cover or specific professional legal cover for the relevant sector. Here too, a clear distinction between private and business portions is important. A traffic legal expenses policy used privately is also not deductible as an operating expense for self-employed individuals, unless the vehicle is used predominantly for business purposes. A private legal expenses insurance policy remains private. Correct allocation is crucial for the tax office.
Evidence and entry: how to satisfy the tax office
For tax recognition of legal expenses contributions, proof of the business-related share is essential. Ideally, your insurance company will issue you with a certificate that explicitly shows the contribution share attributable to employment law cover (for employees) or business legal cover (for self-employed individuals). You should enclose this certificate with your tax return, or at least keep it ready in case the tax office has any queries. Employees enter the deductible amount in Annex N (income from employment) under "Other work-related expenses". Self-employed individuals record the costs as operating expenses in Annex EÜR (income surplus statement) or in their profit and loss account. Complete documentation secures you a tax deduction of up to one hundred per cent of the business-related share. Knowledge of current court rulings can provide additional reassurance here.
Expert knowledge: rulings, sections and drafting tips for legal expenses insurance
The tax deductibility of legal expenses insurance, in particular employment legal expenses cover, is based on established case law and administrative guidance. A key ruling by the Federal Fiscal Court (BFH) dated 31 January 1997 (case ref. BFH/NV 1997 p. 346) confirmed the possibility of claiming the employment-related portion as deductible work-related expenses. Another important document is a letter from the Federal Ministry of Finance (BMF) dated 23 July 1998 (DB 1998 p. 1590), which regulates the details of how contributions are apportioned. These principles give taxpayers the assurance that correctly declared portions will be recognised by the tax office. It is advisable to find out about other insurances that are tax-deductible.
Key court rulings and tax office guidance in detail
Recognition of employment legal expenses cover as deductible work-related expenses is not arbitrary, but is underpinned by rulings from the highest court and guidance from the tax authorities. The Federal Fiscal Court has repeatedly held that expenses for employment legal expenses cover serve to generate employment income and are therefore deductible as work-related expenses. This also applies where employment legal expenses cover is part of an insurance package, such as a family legal expenses insurance policy. In such cases, the insurer must provide separate confirmation of the premium portion attributable to employment legal expenses cover. If such confirmation is missing, the tax office may refuse the deduction. The tax offices are generally bound by BFH case law and BMF letters, which ensures consistent application.
Important points from the case law are:
The employment-related connection must be clearly identifiable.
A flat-rate estimate of the portion by the taxpayer is usually not permitted.
The insurer's confirmation is the preferred evidence.
The deduction is also possible if no specific legal dispute existed during the assessment period.
These points highlight the need for careful documentation. Next, we give you an expert tip.
Our expert tip: optimise structuring and avoid pitfalls
To make the most of the tax benefit of your legal expenses insurance, pay attention to a clear separation of the contract components. Ask your insurer each year for a detailed breakdown of the contributions that explicitly shows the employment-related portion. This saves follow-up questions from the tax office. Our expert tip: Consider whether it is worth taking out standalone employment legal expenses cover if your insurer does not offer a precise breakdown for combined policies. Sometimes this can lead to a clearer tax position, despite possibly slightly higher overall costs. Also note that the costs of motor legal expenses insurance are only deductible on a pro rata basis if it covers business driving (e.g. for field sales staff). For most employees, private motor legal expenses cover is not deductible. A careful review of your insurance and tax situation is always recommended.
Overview: Which other insurance policies are relevant for tax purposes?
In addition to legal expenses insurance, there are numerous other insurance policies whose contributions you can claim for tax purposes under certain conditions. These include in particular pension expenses such as contributions to health and long-term care insurance, which are fully deductible. Contributions to liability insurance (e.g. private liability insurance, motor vehicle liability insurance) and accident insurance can also be claimed as special expenses or work-related expenses (if the accident insurance has a professional connection). For retirement provisions such as Riester or Rürup pensions, there are also specific tax incentives. It is often less well known that contributions to a unit-linked pension insurance policy may also be tax-relevant under certain circumstances. It is worth taking a close look at where insurance policies should be entered in the tax return so as not to miss out on any potential benefits. A comprehensive review of all insurance policies can bring several hundred euros in tax savings each year.
Request an individual risk analysis now: have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Wikipedia offers a general overview of legal expenses insurance and its various areas.
Finanztip explains in detail how you can claim legal expenses insurance for tax purposes.
The Vereinigte Lohnsteuerhilfe (VLH) provides information on the deductibility of legal expenses insurance costs in the tax return.
Lohnsteuer-kompakt.de offers information on work-related insurance policies and their tax deductibility.
Finanztip looks at the option of claiming professional insurance policies as work-related expenses.
Taxfix provides a guide on how various insurance policies can be deducted from tax.
Steuererklaerung.de offers comprehensive information on the tax deductibility of insurance policies.
The NWB Verlag offers specialist information on tax deductibility in its database, which is accessible to subscribers.
Lexware provides information on the deductibility of insurance policies in accounting and finance.
FAQ
Which part of my legal expenses insurance is exactly tax-deductible?
Only the portion of your legal expenses insurance that covers professional legal disputes is tax-deductible – namely the so-called employment legal protection cover. For self-employed people, this is the professionally incurred legal protection cover. Private components such as private, tenancy or traffic legal protection (for private journeys) are not deductible.
Where do I enter the costs for employment legal protection in my tax return?
As an employee, you enter the contributions for employment legal protection in Schedule N of your income tax return under the section “Other work-related expenses”. Self-employed people claim the costs as business expenses.
Do I need proof for the tax office?
Yes, proof is very important. Ideally, you will receive a certificate from your insurer showing the exact contribution share for employment legal protection. You should enclose this with your tax return or keep it ready in case of any queries.
Is it always worth deducting legal expenses insurance?
Claiming employment legal protection as deductible work-related expenses is worthwhile for employees when their total work-related expenses exceed the employee flat-rate allowance of 1,230 euros (as at 2024). Every euro above this reduces your taxable income.
What if I have combined legal expenses insurance?
In the case of a combined policy (e.g. private, professional and motor legal expenses cover), only the portion for employment/labour law cover is tax-deductible. Your insurer must show this portion separately. Without this proof, claiming a deduction is difficult.
Can pensioners also deduct their legal expenses insurance?
Pensioners generally no longer have income from active employment and therefore cannot claim employment law protection as deductible work-related expenses. However, if there is still an employment relationship (e.g. a mini-job), a pro rata deduction could theoretically be possible if the flat-rate allowance is exceeded. However, this is rather rarely the case.
