Can I also receive a severance payment tax-free?
November 26, 2023 | 50,00 EUR | answered by Albrecht Schlüter
Dear tax consultant,
my name is Marie Vollbrecht and I have been working in a medium-sized company for 10 years. Now a restructuring is imminent and I have been offered a severance package as my position will be eliminated. I am concerned about the tax implications of this severance package and wonder if it is possible to receive it tax-free.
I have heard that severance payments are generally taxable and can only be tax-free in certain cases. Is there a way for me to receive the severance package tax-free? What requirements must be met and what tax regulations should I be aware of?
I would like to know if it is beneficial for me to receive the severance package in installments or if there are tax advantages to receiving it all at once. Additionally, I would like to find out if I can invest the severance package in a tax-efficient manner to minimize the amount of taxes I have to pay.
I would be very grateful if you could provide me with specific tips and advice on how to receive my severance package tax-free and what tax implications it will have for me in the future. Thank you in advance for your assistance.
Sincerely,
Marie Vollbrecht
Dear Mrs. Vollbrecht,
Thank you for your inquiry regarding the tax implications of a severance payment in the course of a restructuring in your company. I understand your concerns and will be happy to provide you with all the important information on this topic.
In general, severance payments are subject to taxation and are subject to income tax. However, there are certain conditions under which a severance payment can be tax-free. A tax-free severance payment, for example, is possible if it is paid due to a legal regulation or a social plan. Also, in the case of a termination for operational reasons, a severance payment can be tax-free up to a certain amount.
To receive a tax-free severance payment, it is important that the conditions for tax relief are met. Therefore, it is advisable to inform yourself in advance about the tax regulations and, if necessary, seek professional advice.
Regarding the payout of the severance payment, there is no one-size-fits-all answer as to whether it is more advantageous to receive the payment in installments or all at once. The tax implications can vary depending on the individual situation. However, there may be tax benefits to receiving the severance payment all at once, as it will be taxed in one year and may therefore fall into a lower tax bracket.
If you would like to invest the severance payment in a tax-optimized way, it is advisable to seek advice from a specialist. There are various ways to invest the severance payment in a tax-optimized manner, such as setting up pension products or tax-optimized investment funds.
In summary, I recommend that you thoroughly familiarize yourself with the tax regulations regarding your severance payment and, if necessary, seek professional advice. This way, you can ensure that you receive your severance payment tax-free and make optimal use of possible tax benefits.
I hope that this information has been helpful to you and I am happy to answer any further questions you may have.
Sincerely,
Albrecht Schlüter
