Are supplements or bonuses treated differently for tax purposes as part of the severance package?
October 1, 2022 | 40,00 EUR | answered by Lorenzo Zimmermann
Dear tax advisor,
My name is Katrin Weise and I am currently facing the decision of accepting a severance payment from my employer. The severance payment includes both a fixed amount as well as additional bonuses and premiums that have been offered to me.
My concern is regarding how the bonuses and premiums will be treated for tax purposes and whether they will have an impact on the amount of taxes I will have to pay on the severance payment. I want to avoid having to pay more taxes in the end than I had originally planned for.
Could you please explain to me if bonuses and premiums, as part of the severance payment, are treated differently for tax purposes than the fixed amount? Are there ways to minimize or optimize the tax burden from the bonuses and premiums?
I would greatly appreciate it if you could provide me with a clear and understandable answer to my question. Thank you in advance for your assistance.
Sincerely,
Katrin Weise
Dear Mrs. Weise,
Thank you for your question regarding the tax treatment of allowances and bonuses in the context of a severance payment. It is important to note that both the fixed amount and the additional allowances and bonuses are generally subject to taxation.
However, the tax treatment of allowances and bonuses depends on whether they are tax-free or taxable income. Tax-free allowances and bonuses may include those for anniversaries, special achievements, or voluntary social benefits. In this case, they do not need to be taxed.
Taxable allowances and bonuses, on the other hand, are subject to income tax. These are taxed as other income along with the fixed severance amount. The amount of tax depends on your individual tax rate, which in turn is based on your total income.
To optimize the tax burden of allowances and bonuses, there are ways you can consider. For example, you may consider splitting the severance payment over two years to potentially benefit from a lower tax rate in one year. You can also explore opportunities to utilize tax-free allowances or tax breaks to reduce the tax burden.
It is advisable to consult with an experienced tax advisor to discuss your individual situation and develop an optimal tax strategy. This way, you can ensure that you are not paying more taxes than necessary and make the most of your severance payment.
I hope this response has been helpful to you. If you have any further questions, please do not hesitate to contact me.
Best regards,
Lorenzo Zimmermann
