Can I donate my severance payment tax-free?
June 12, 2024 | 55,00 EUR | answered by Edith Hartmann
Dear tax consultant,
My name is Bernd Niemeyer and I have a question regarding severance pay. There is a company-related termination in my company, and I have been offered a severance package. Now I am considering whether it is possible to donate this severance pay tax-free.
I am aware that severance payments are generally subject to tax and must be taxed at the normal income tax rate. However, I have heard that under certain circumstances it is possible to donate a severance payment tax-free. Is this true? And if so, what are the requirements that need to be met?
My goal is to donate a portion of my severance pay to a good cause and save on taxes in the process. Are there ways to do this legally? I am concerned that by donating my severance pay, I may potentially violate tax laws and end up having issues with the tax authorities.
Could you please explain to me in detail what options are available to donate my severance pay tax-free? What steps do I need to take and how can I ensure that everything is done correctly? I look forward to your expertise and thank you in advance for your support.
Sincerely,
Bernd Niemeyer
Dear Mr. Niemeyer,
Thank you for your inquiry regarding severance pay and tax-free donations. It is indeed possible to donate severance pay tax-free, but there are certain conditions to consider.
In general, severance pay is subject to taxation and must be taxed at the normal income tax rate. However, this tax amount can be reduced through a tax-free donation. In order to donate severance pay tax-free, the donation must be made to a charitable organization. This means that the organization must be recognized as charitable and able to issue donation receipts.
To ensure that the donation is tax-free, you must ensure that the donation actually comes from the severance pay and not from other income. Additionally, you should inquire with the charitable organization beforehand to confirm if they accept donations from severance pay and can issue donation receipts.
It is important to document all steps and prove that the donation comes from the severance pay. This includes, for example, a corresponding declaration of use for the donation and the submission of the donation receipt to the tax office.
There is, however, a limit for tax-free deductible donations. Currently, this limit is 20 percent of the total severance pay amount, but capped at 1 million euros. So, for example, if you receive a severance pay of 50,000 euros, you could donate up to 10,000 euros tax-free.
It is advisable to seek advice from a tax advisor before making the donation and filing your tax return to ensure that everything is done correctly and you do not encounter any issues with the tax office. A professional tax advisor can help you plan and implement your tax-free donation and consider all legal aspects.
I hope this information has been helpful to you and I am available if you have any further questions.
Best regards,
Edith Hartmann
