Cashback and taxes for self-employed & freelancers

Cashback refers to money or rewards you get back after purchasing goods or using services. It can come via credit cards, loyalty programs, or bonus schemes from providers. For freelancers, how it’s treated in tax accounting depends on its nature. Some cashback acts like a discount on your business expense; others count as separate income—especially if tied to referrals or banking bonuses.

Expense reduction vs extra income

• Expense-based cashback: Applies when cashback is tied directly to a business expense. In such cases, treat it as a price reduction, not extra revenue—this ensures you don’t overstate expenses.

• Bonus cashback: When cashback arrives as a bonus—such as referral or sign-up rewards—it may qualify as other income (“sonstige Einkünfte”) and needs proper declaration in your tax return.

How to treat cashback for business vs private use

• If redeeming cashback on private items, it’s usually not deductible and doesn’t affect business taxes.

• If cashback relates to business purchases, it’s best to treat it as a reduction in the expense. That way, you’re not overstating costs—your deductible expenses go down accordingly. If cashback crosses the €256 limit, it becomes taxable income instead of an expense discount  .

In other words: say you spent €500 on supplies and got €20 cashback—record it as a €480 expense, not a separate €20 income. That ensures accuracy in your profit calculation.

A key rule: cashback, bonuses, or other rewards up to €256 per year are tax-free thanks to a special Freigrenze—a threshold, not a deduction. But if the total exceeds €256, the entire amount becomes taxable and must be declared as “sonstige Einkünfte” (other income) under § 22 EStG

Multiple cashback types and real-life scenarios

Combining different cashback sources—like loyalty rebates plus bank bonuses—requires careful bookkeeping:

What does the law say?

• Cashback and bonus earnings that total under €256 per year are tax-free.

• Over €256, the entire amount is taxable, even if only slightly over the limit.

• These go under “other income” in your tax return, typically in the Anlage SO form.

So, small, incidental cashback likely doesn’t cause issues—but multiple sources or high amounts can push you over the limit.

Five quick takeaways on treating cashback correctly

1. Classify carefully – Always distinguish whether your cashback is a discount on a business expense or a bonus/income. This determines how you account for it.

2. Apply cashback as expense reduction – When cashback directly reduces a business-related purchase, subtract it from your expenses so your profits—and taxable income—aren’t overstated.

3. Treat bonus cashback as income – If you receive cashback through promotions, referrals, or other bonuses unrelated to a specific expense, record it under “other income” (sonstige Einkünfte) in your tax return.

4. Mind the annual threshold – Cashback bonuses are tax-exempt only up to a yearly threshold; beyond that, the full amount becomes taxable.

5. Be diligent with documentation – Keep clear records: note the source, purpose, and type of cashback. This strengthens your bookkeeping and helps if the tax office reviews your submissions.

✅ Find more deductibles you can apply here

FAQ

Q: Can cashback reduce my taxable profit?

A: Yes—if tied to business purchases, it should lower your expense. But only if totals remain under €256 annually

Q: What happens if I get cashback from multiple sources?

A: Add them all up. If the combined total is more than €256, the full amount becomes taxable

Q: Where do I report cashback over €256?

A: In your tax return as “sonstige Einkünfte” on Anlage SO under § 22 EStG

Q: Are cashback bonuses like referral rewards always taxable?

A: Generally, yes—if they’re not related to an expense discount, they may count as income under German tax law