Daily allowance insurance is tax deductible: Secure maximum benefits
03.06.25
12
Minutes
Katrin Straub
Managing Director at nextsure
A prolonged illness can quickly lead to financial shortfalls, especially for self-employed people. Find out how daily sickness allowance insurance can be tax-deductible and ensure your financial security in an emergency.
The topic in brief and concise terms
Contributions to private daily sickness benefit insurance can be claimed as precautionary expenses of up to €1,900 (employees) or €2,800 (self-employed) per year, although this allowance is often already exhausted by basic health insurance contributions.
Benefits from private daily sickness allowance insurance are completely tax-free and are not subject to the progression proviso, unlike statutory sick pay.
For self-employed people, sickness daily allowance insurance is particularly important, as they often do not receive continued pay; the insured amount should not exceed net income.
Sickness daily allowance insurance: understanding the tax basics
Contributions to a private daily sickness benefit insurance policy can generally be claimed in your tax return as other pension expenses. These are entered in the supplementary pension expenses section, since 2019 in line 27 or under “Optional benefits and supplementary insurance” when using ELSTER. For employees and pensioners, an annual maximum amount of EUR 1,900 applies; for self-employed persons, it is EUR 2,800. However, these amounts are often already used up by contributions to basic health and long-term care insurance. Additional tax savings through daily sickness benefit insurance are therefore only limited in many cases. The good news, however, is that benefits from a private daily sickness benefit insurance policy are tax-free when a claim arises. This is a decisive advantage compared with sickness benefit from statutory health insurance. The exact rules and how you can make the best use of them are crucial for your financial planning.
Deducting contributions: How to maximise your tax savings
Although the maximum amounts for pension expenses are quickly reached, it is worthwhile declaring contributions to daily sickness allowance insurance correctly. Every euro counted within the allowance reduces your taxable income. For married couples assessed jointly, the maximum amounts double to EUR 3,800 (both employees) or EUR 5,600 (both self-employed). If one partner is employed and the other self-employed, the joint maximum amount is EUR 4,700. You should therefore check carefully whether your total pension expenses have already exceeded these limits. Careful documentation of all insurance contributions is essential here. Please note that contributions to sensible daily sickness allowance insurance only have a tax effect if the maximum amount has not already been reached through other insurance policies to be taken into account first, such as basic health insurance. Tax treatment can be complex, so it is advisable to analyse your own situation carefully.
Tax-free benefits: The major advantage of private daily allowance insurance
A key advantage of private daily sickness benefit insurance is that the benefits paid are tax-free. Unlike sickness benefit from statutory health insurance (GKV), which is subject to the progression clause, private daily sickness benefit does not affect your tax rate on other income. This means that you receive the agreed amount, for example 100 euros per day, net and without deductions. Over a longer period of illness, this advantage can represent a considerable financial relief. In its ruling (case no. III R 36/13), the Federal Fiscal Court confirmed that this different treatment of GKV sickness benefit and private daily sickness benefit is constitutional. This arrangement provides a reliable basis for calculating benefits in the event of a claim. For comprehensive cover, it is important to know the difference between sickness benefit and daily sickness benefit precisely. Tax-free payment secures up to 100 per cent of your insured daily rate in an emergency.
Practical example: Tax implications compared
To illustrate the difference, let’s look at an example. Suppose an employee has a taxable annual income of 40,000 euros. Without wage replacement benefits, he pays, for example, 8,976 euros in income tax on this amount (tax rate of around 22 per cent). If he then receives sickness benefit from the statutory health insurance scheme (GKV), for example 10,000 euros a year, this remains tax-free, but it increases the income relevant for the tax rate to 50,000 euros. The tax rate applied to the 40,000 euros therefore rises, leading to a higher overall tax burden. If, instead, he were to receive 10,000 euros from a private daily sickness benefit insurance policy, his tax rate for the 40,000 euros would remain unchanged, as private daily sickness benefit is not subject to the progression proviso. This difference can mean several hundred euros in tax savings per year. The exact calculation depends on many individual factors. A consideration of insurance and tax is therefore always to be made on an individual basis.
Here are the key differences summarised:
Private daily sickness benefit: The payout is 100 per cent tax-free and is not subject to the progression proviso.
Statutory sickness benefit: The payout is tax-free, but is subject to the progression proviso (from 410 euros per year).
Contributions to private daily sickness benefit insurance: Deductible as other precautionary expenses, but often capped by maximum limits.
Contributions to statutory health insurance (including the sickness benefit portion): Largely deductible as basic provision.
This distinction is particularly relevant for long-term financial planning in the event of illness.
Special case for self-employed people: What you need to bear in mind
For self-employed people, daily sickness benefit insurance is often the only protection against loss of income due to illness, as they usually do not receive continued pay from an employer. They can claim the contributions as special expenses up to a maximum of EUR 2,800 per year, provided this amount has not already been used up by basic health and long-term care insurance. The key here is choosing the right tariff, which compensates for loss of earnings from the desired point in time, often as early as the eighth or 15th day of illness. The amount of insured sick pay should not exceed the average net income of the last twelve months. Some insurers use 70 to 80 per cent of pre-tax profit as the basis here. Be sure to clarify this calculation basis before signing the contract. For self-employed people, sick pay is a measure that secures their livelihood. The tax-free benefits in the event of illness are an important building block of financial stability.
Expert depth: Current rulings and statutory provisions
The tax treatment of sickness daily allowance insurance is based on various statutory provisions and court rulings. The deductibility of contributions as provision expenses is governed by Section 10 of the Income Tax Act (EStG). The tax exemption of benefits from private sickness daily allowance insurance and the non-application of the progression proviso arise from Section 3 No. 1a EStG in conjunction with case law, in particular the Federal Fiscal Court judgment of 13 November 2014 (III R 36/13). This judgment confirms that the unequal treatment of statutory sick pay (with progression proviso pursuant to Section 32b(1) No. 1b EStG) and private sickness daily allowance (without progression proviso) is in line with the Constitution. Our expert tip: Keep an eye on current legislative changes and court rulings, as these may affect your tax return. If you have questions about the deductibility of insurance policies, expert advice is often helpful. It is important to know how long sickness daily allowance is paid and what tax consequences this has.
Important aspects from case law and legislation:
Section 10 EStG regulates the deductibility of provision expenses.
Section 3 No. 1a EStG deals with tax-free income, which also includes private sickness daily allowances.
Section 32b EStG defines the progression proviso, which does not apply to private sickness daily allowance.
Federal Fiscal Court judgment III R 36/13 confirms the different tax treatment of statutory and private sickness daily allowance.
The maximum amounts for provision expenses (EUR 1,900 / EUR 2,800) often limit the deductibility of sickness daily allowance contributions.
These points illustrate the complexity, but also the clear advantages of the private solution.
To make the most of daily sickness benefit insurance from a tax perspective, you should bear a few points in mind. Choose an appropriate level of sickness benefit; it should protect your net income, but not exceed it, so as to avoid any issues with the so-called prohibition on unjust enrichment. Pay attention to the waiting period: a longer waiting period (e.g. benefits paid from day 43) can reduce premiums, which is particularly sensible if, as an employee, you first receive six weeks’ continued pay. Our expert tip: review your contracts regularly and adjust them as necessary to reflect any changes in your personal circumstances or income situation. This is especially important if your private health insurance does not pay sickness benefit or if reductions are made. A combination with income protection insurance can also be worthwhile in order to cover long-term loss of earnings. A well-considered strategy gives you the necessary financial flexibility in the event of a claim and makes the best possible use of any tax advantages available.
Conclusion: Thoughtfully designing financial security
The question of whether sickness benefit insurance is tax-deductible can be answered in a nuanced way. While the premiums only have a limited tax-reducing effect, as the maximum allowances for pension provisions are often already used up by health and long-term care insurance contributions, the major advantage lies in the tax-free benefits. These are not subject to progression and ensure you receive net income in the event of illness without tax deductions. A private daily sickness allowance insurance is an indispensable component of securing your livelihood, especially for the self-employed. With the right knowledge and good planning, you can secure your financial future even if you become ill. The nextsure experts will be happy to help you find the cover that suits your situation and understand the tax aspects. Individual advice can help you avoid pitfalls and optimise your cover.
Request your individual risk analysis now: Have your insurance situation checked free of charge and receive concrete suggestions for optimisation.
More useful links
Federal Ministry of Finance provides insights into tax basics and appendices relevant to daily sickness allowance insurance.
Laws on the Internet provides the exact wording of Section 10 of the Income Tax Act (EStG), which governs the deductibility of pension expenses.
Federal Ministry of Health provides comprehensive information on statutory health insurance sickness benefit.
Federal Statistical Office (Destatis) provides detailed data on health expenditure in Germany.
Federal Statistical Office (Destatis) provides current statistical data and insights in a press release.
Laws on the Internet provides the Insurance Contract Act (VVG) of 2008, which governs the legal framework for insurance.
VLH (Association of Wage Tax Assistance e.V.) provides information on which insurance policies are tax-deductible.
FAQ
How much tax do I have to pay on sickness daily allowance?
You do not pay tax on sickness benefit from a private insurance policy. It is completely tax-free and does not affect your tax rate for other income either.
Is daily allowance insurance worthwhile for tax purposes?
The tax deductibility of contributions is often limited by caps, which are usually already exhausted by basic health insurance. The main advantage lies in the tax-free benefits in the event of illness, which are not subject to the progression proviso.
What is the progression proviso for sickness benefit?
The progression proviso means that tax-free income (such as statutory sickness benefit) is not taxed itself, but it increases the taxable income used to determine the tax rate. As a result, the tax rate for your other taxable income may increase. Private sickness benefit is not subject to this proviso.
Do self-employed people have to pay tax on sickness benefit?
No, self-employed people also do not have to pay tax on sickness benefit from private insurance. The benefits are tax-free. The contributions can be claimed within the maximum limits (€2,800) as precautionary expenses, provided these have not otherwise been fully used.
Which insurance policies can I also deduct besides daily allowance insurance?
In addition to contributions to basic health and long-term care insurance, contributions to other precautionary insurance policies (e.g. accident, liability or occupational disability insurance) can also be deducted within the maximum limits for special expenses. The actual effect depends on whether the maximum limits have already been reached.
Is there a difference in the tax treatment of sickness daily allowance for employees and civil servants?
The tax treatment of contributions and benefits from private daily sickness allowance insurance is basically the same for employees and civil servants. For both groups, the maximum amount for tax-deductible preventative expenses of €1,900 applies to the deductibility of contributions. The benefits are tax-free for both groups.
