Are there differences in the taxation of severance payments in different employment relationships?
September 10, 2022 | 50,00 EUR | answered by Edith Hartmann
Dear tax advisor,
My name is Louis Voigt and I have been working in a permanent position at a medium-sized company for 10 years. Unfortunately, I have been offered a severance package unexpectedly, as the company wants to restructure. I am now unsure about how this severance package will be treated for tax purposes and if there are differences in the taxation of severance packages in different employment situations.
My monthly gross salary is 3,500 euros and the severance package amounts to 30,000 euros. I am married and have two children. My wife is currently on parental leave and receiving parental benefits. We are unsure about how the severance package will affect our joint tax burden and if there are ways to save on taxes.
I am concerned that the severance package will make up a large portion of my income and could result in a high tax burden for us. Are there any special regulations or tax exemptions that are taken into account when taxing severance packages? How can we minimize the tax burden and what are the tax implications of the severance package on our joint income?
I would greatly appreciate it if you could provide me with detailed information on the tax differences in severance packages in different employment situations and suggest possible solutions. Thank you in advance for your help.
Sincerely,
Louis Voigt
Dear Mr. Voigt,
Thank you for your inquiry regarding the taxation of your severance payment and its impact on your joint tax burden. I understand that this is an important matter for you and would like to provide you with detailed information on the subject.
In principle, severance payments are subject to income tax. However, there are differences in taxation depending on the type of employment relationship. In the case of a severance payment from a regular employment relationship like yours, it is taxed according to the "Fünftelregel." This means that the severance payment is evenly distributed over five years and then taxed at the individual tax rate. This can result in a lower tax burden, as the tax rate on the total amount of the severance payment is lower.
On the other hand, a severance payment from a mini-job or short-term employment may be subject to higher taxation, as no progression clause is applied and the entire severance payment is taxed in one year. It is therefore important that you correctly declare your severance payment and apply the correct taxation.
In your case, with a monthly gross salary of 3,500 euros and a severance payment of 30,000 euros, it is possible that your tax burden will be increased by the severance payment. However, there are also tax-free allowances and tax benefits that can help minimize your tax burden. For example, you can claim expenses such as travel expenses to work, work materials, or training costs.
Since you are married and your wife is currently receiving parental leave benefits, the severance payment may also have an impact on the parental leave benefits. It is therefore important that you also inform yourself about this and, if necessary, consult with the parental leave benefits office.
To minimize your tax burden, I recommend seeking professional help from a tax advisor. They can provide you with individual solutions and help you optimize the taxation of your severance payment.
I hope that this information is helpful to you and I am available to answer any further questions.
Sincerely,
Edith Hartmann
