Ask a tax advisor on the topic of Severance pay

1/5 rule when I know that my annual gross income is higher?

January 24, 2012 | 25,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Dear Sir or Madam,

I will be leaving my company on February 29, 2012.
My annual gross salary in 2011 was approximately 58,000 euros.

For the first 2 months, I will still receive my full salary (~4400 euros/month) and a severance payment of 35,000 euros.
From March 1, 2012, I will be working at a new company where I will be receiving 5000 euros/month.

Can I now apply for the 1/5 rule with my employer?

Kind regards

Dipl.BW/SB Ulrich Stiller

Dear enquirer,

Thank you for your request, which I would like to answer based on your information and in the context of your use in an initial consultation as follows:

You are entitled to the "Fünftelregelung" (five-fifths rule) on the severance pay if there is a clustering of income during ONE assessment period.

Such a clustering occurs when:

1. the severance pay plus other income from the termination of the contract are higher than the salary lost by the end of the year (Federal Fiscal Court ruling of 9.10.2008, IX R 85/07, BFH/NV 2009 p. 558) OR

2. all taxable income of the severance pay year (including income from a new activity) is higher than the income of the previous year or the annual income with severance pay (including unemployment benefits) (Federal Ministry of Finance letter of 24.5.2004, BStBl. 2004 I p. 505 Rz. 10-12).

In your case, the conditions for the application of the "Fünftelregelung" are met, as the income in 2012, including the severance pay, exceeds the gross income in 2011. Therefore, the "Fünftelregelung" can be requested.

Ultimately, you can also apply for the "Fünftelregelung" in your 2012 income tax return, which will be submitted in 2013.

I hope I was able to assist you.

Best regards,

Ulrich Stiller
Tax consultant/Business economist