Can I receive my severance pay in installments to save on taxes?
April 15, 2024 | 40,00 EUR | answered by Albrecht Schlüter
Dear tax consultant team,
My name is Katja Baradari and I have been working for many years in a company that is currently planning a restructuring. As part of this, I have been offered a severance payment to terminate my employment. As I am concerned about the taxation of the severance payment, I am wondering if it is possible to receive the severance payment in installments in order to save on taxes.
My current situation is as follows: The severance payment offered to me is a large amount that is supposed to be paid in a lump sum. However, I am concerned that the one-time payment could result in a higher tax burden, so I am looking for alternatives to save on taxes.
My concerns are that the severance payment will increase my taxable income and therefore a higher tax rate will be applied. Therefore, I am interested in finding out if it is possible to receive the severance payment in installments in order to potentially fall into lower tax brackets and save on taxes.
My question to you is: Is it possible to receive my severance payment in installments to save on taxes? If yes, what are the options available and what tax aspects should be considered?
Thank you in advance for your support and advice.
Sincerely,
Katja Baradari
Dear Katja Baradari,
thank you for your inquiry regarding the taxation of a severance payment and the possibility of receiving it in installments to save taxes. As a tax advisor specializing in severance payments, I am happy to assist you and provide some important information on this topic.
In general, it is possible to receive a severance payment in installments. However, this option must be negotiated with the employer in advance and specified in the severance agreement. From a tax perspective, it is generally better to receive the severance payment in installments, as this prevents a sudden increase in taxable income. This may result in you falling into a lower tax bracket and ultimately paying less taxes overall.
It is important to note that even with a gradual payout of the severance payment, there are tax implications to consider. The severance payment is subject to income tax and must be reported in your tax return. Depending on the amount of the severance payment and your other income, this may increase your tax rate.
There are various ways to receive the severance payment in installments. For example, you could agree to have the payment distributed monthly or annually over a specified period of time. It is important to specify all details regarding the installment payout in the severance agreement to avoid any misunderstandings later on.
In summary, receiving a severance payment in installments can be a smart way to save taxes. However, it is advisable to consult with a tax advisor beforehand to consider all tax implications and find the best solution for your individual situation.
I hope this information has been helpful to you. Please feel free to reach out if you have any further questions.
Best regards,
Albrecht Schlüter
