What is an allowance

An allowance is a monetary form of compensation, paid out regularly, and which forms part of the employee’s total compensation.

By default, it will be treated in the payroll as a gross payment which may or may not incur taxes not only for the employee but also for the employer.

 It should not be confused with non-taxable income. Only in specific situations, the purpose of its use, and the tax legislation of the country of employment, an allowance can be treated as non-taxable or partially taxable.