1/5 rule, clustering, start-up grant
July 17, 2011 | 40,00 EUR | answered by Michael Herrmann
Dear Sir or Madam,
My termination agreement dates back to the year 2007; I was then employed by the company for another 2 years with a reduced income (in a so-called "operationally independent unit").
In 2009, I received salary for 10 more months and then 2 months of unemployment benefits (ALG1). The severance pay (specifically: severance pay + notice period compensation) was received in 2010.
In 2010, I received unemployment benefits for one more month and then the tax and progression-free start-up grant from the Employment Agency for 9 months to start my own business. The self-employment in 2010 resulted in a negative income.
Question 1:
Does the start-up grant (which I would not have received if I had continued my employment) count towards the comparison of "concentration of income" like ALG1 (subject to progression clause)?
Question 2:
Which tax assessment year (VZ) is compared in the case of "concentration of income" in my situation, and is the pure gross wage - or after deductions such as advertising costs - taken into account?
Question 3:
Does the "compensation" include not only the pure severance pay but also the notice period compensation?
Thank you in advance.
Dear inquirer,
First of all, thank you for your inquiry, which I would like to answer based on the information provided and in the context of your involvement in an initial consultation. The response is made according to the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
An indemnity payment is not automatically subject to reduced taxation under the fifth-rule according to § 34 (2) EStG. This is only the case when the indemnity payment results in an aggregation of income. This is done to mitigate the progression effect of the income tax tariff on tax benefits. An aggregation of income is assumed when the annual income with indemnity is higher than it would have been if the employment relationship had continued undisturbed, i.e., under normal circumstances (BFH ruling of 27.1.2010, BStBl. 2011 II p. 28; BMF letter of 17.1.2011, BStBl. 2011 I p. 39).
For the hypothetical annual income, the focus is generally on the earnings of the previous year. For the current annual income, all earnings are included that you would not have received if the employment relationship had continued (BMF letter of 24.5.2004, BStBl. 2004 I p. 505, para. 11 ff.; BFH ruling of 4.3.1998, BStBl. 1998 II p. 787). The term "earnings" presupposes that the advertising costs have been deducted from the gross wage.
The comparison calculation with the previous year (here 2009) only applies to the normal case, in which the conditions of the previous year also likely reflect those of the following year, e.g., with normal salary development. However, it does not apply if the income situation of the previous year is influenced by extraordinary events and no predictions can be made for the (assumed) normal course in the continuation of the employment relationship (BFH ruling of 27.1.2010, BStBl. 2011 II p. 28). In your case, it is assumed that the salary of the year 2009 is the main reference for assessing the aggregation of income.
The ALG I (unemployment benefit I) is not taken into account for the assessment of aggregation. It is considered in the tax assessment through progression reserve. The start-up grant remains completely disregarded as social benefit.
Termination compensation:
If the employment relationship is terminated by mutual agreement before the regular notice period expires and the salary is paid in a lump sum until the end of the notice period, it is considered a tax-advantaged indemnity (BFH ruling of 10.10.1986, BStBl. 1987 II p. 186).
If you are released from work with continued payment of benefits after your termination until the end of the notice period, these salary payments do not constitute an indemnity, even if they are paid in a lump sum (BFH ruling of 27.4.1994, BStBl. 1994 II p. 653).
I hope that these details provide you with a sufficient overview of the situation within the scope of your involvement and this initial consultation, and remain
Yours sincerely
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax advisor
