Are there tax-free amounts for severance payments?
December 24, 2022 | 40,00 EUR | answered by Edith Hartmann
Dear tax advisor,
My name is Jakob Schneider and I have been working for my current employer for 10 years. Unfortunately, I have recently been given a termination notice due to operational reasons and have been offered a severance package. Since I am not very knowledgeable about tax matters, I have some questions regarding this topic.
I have heard that there may be tax-free allowances for severance payments. Is this true and if so, what are the amounts of these allowances? Are there specific requirements that need to be met in order to benefit from these allowances?
Furthermore, I am concerned about whether the severance payment is taxable and how high the tax burden could be in my case. Are there ways to minimize the tax burden or to structure the severance payment in a tax-efficient manner?
I would greatly appreciate it if you could answer these questions for me and provide possible solutions to optimize my tax situation in relation to the severance payment.
Thank you in advance for your assistance.
Sincerely,
Jakob Schneider
Dear Mr. Schneider,
Thank you for your inquiry regarding your severance package and the tax implications associated with it. It is understandable that you are concerned and unsure about the best course of action. I will try to answer your questions as comprehensively as possible.
Firstly, regarding exemptions for severance packages: Yes, there are exemptions that can be granted in certain cases. For example, half of the severance package up to an amount of 45,000 euros is tax-free if the severance is paid within the context of a redundancy and the employee has been in an uninterrupted employment relationship for at least 1 year. The exemption amount increases accordingly for longer periods of employment.
In order to benefit from these exemptions, certain conditions must be met, such as the duration of the employment relationship and the reason for the redundancy. Therefore, it is important to gather all relevant information about your severance package and employment relationship in order to correctly assess the tax situation.
Regarding the tax burden, severance packages are generally taxable. The amount of tax depends on various factors, such as your personal tax rate and the amount of the severance package. However, there are ways to minimize the tax burden, such as favorable structuring of the payment or utilizing tax exemptions and allowances.
To optimize your tax situation, I recommend seeking advice from a tax advisor. An expert can analyze your individual situation and provide you with specific recommendations to minimize your tax burden and receive your severance package in a tax-efficient manner.
I hope this information has been helpful to you. If you have any further questions or require more detailed advice, please do not hesitate to contact me.
Best regards,
Edith Hartmann
