bonus payment
January 11, 2011 | 40,00 EUR | answered by Oliver Burchardt
Hello, in March 2008 I received a termination after 35 years of service. I signed a contract for a severance payment of 280,000 euros, due in January 2010. There was an internal agreement with the works council that this is the maximum amount. I negotiated an additional 45,000 euros with my supervisor. For this 45,000, I signed a retention agreement, also due in January 2010. The bonus is contingent on certain conditions. I must stay until October 31, 2010, perform my job satisfactorily, and meet my performance goals. The severance payment is listed in the tax certificate for the tax office for multiple years, and the other payment as regular income. Do I have a chance to claim the bonus and severance payment as tax deductible, especially considering I also received 27,000 euros in sick pay this year? As a layman, I believe this bonus is for the period between March 2008 and January 2010. Thank you for your help.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
The tax assessment is based on the information provided by you. Adding, changing, or omitting information may affect the tax assessment, possibly significantly.
To benefit from the so-called Fifth Rule, the paid salary must be attributable to several years. For severance payments that provide compensation for social disadvantage due to job loss, this requirement is easily met.
Therefore, the assessment of the bonus must determine whether the payment can be attributed to multiple years. In your case, the argument is difficult because the contract that agreed to the additional payment indicates, by its wording, a causation in the year 2010 (remaining in the job, meeting the target agreement). You must successfully argue against this presumption. Based on the sequence of events you described, this is certainly feasible, as the additional amount is economically related to the severance payment. The Federal Fiscal Court (BFH) has recognized this as sufficient to qualify for the tax concession (BFH dated 14.12.2006, IV R 57/05). However, you bear the burden of proof for these circumstances.
Since you have already received the tax certificate, correcting the certificate is no longer possible.
However, regarding your income tax return, you are not bound by your employer's assessment. If you can prove that the conditions for considering the additional bonus as salary for multiple years are met, you can indicate this in the income tax return. However, as mentioned above, the burden of proof lies with you. If you cannot prove that the additional payment is solely related to the termination, I see little chance based on the clear wording of the contract.
I regret that I cannot provide you with a more favorable response.
Best regards,
Oliver Burchardt
Tax advisor
