Do I have to declare a severance payment in my tax return?
May 19, 2022 | 50,00 EUR | answered by Albrecht Schlüter
Dear tax consultant team,
My name is Nina Büchner and I am currently working in a company that has issued a redundancy notice. As part of this, I have been offered a severance payment. I am unsure whether I need to declare this severance payment in my tax return and what impact this could have on my tax situation.
I am worried that I may have to pay additional taxes if I do not correctly declare the severance payment in my tax return. I want to make sure that I consider all tax aspects correctly and avoid making any mistakes that could lead to financial disadvantages.
Could you please explain to me if I need to declare the severance payment in my tax return and how this could affect my tax burden? Are there possibly ways to minimize the tax burden through clever tax planning? What information and documents are required to correctly record the severance payment in the tax return?
Thank you in advance for your help and support. I look forward to your professional advice on this matter.
Sincerely,
Nina Büchner
Dear Mrs. Büchner,
Thank you for your inquiry regarding the severance payment and its tax treatment. As a tax advisor specializing in severance matters, I am happy to assist you.
In general, a severance payment must be declared in your tax return. Severance payments are considered income from employment and are therefore subject to income tax. The severance payment is usually reported as other income in schedule N of the tax return. The severance amount is added to your taxable income and taxed accordingly.
The amount of tax levied on the severance payment depends on various factors, such as your tax class, your individual tax rate, and the timing of the payment. Usually, the severance payment is taxed using the so-called fifth or half-income procedure, which can reduce the tax burden on the severance.
There are various ways to minimize the tax burden through smart tax planning. One option is to spread the severance payment over several years to avoid the progression proviso and thus reduce the tax burden. It may also be beneficial to invest the severance in a tax-efficient form, such as company pension scheme.
For the correct reporting of the severance payment in your tax return, you usually need a certificate from your employer stating the amount of the severance and the period in which the payment was made. It is important to keep all relevant documents carefully and consider them when preparing your tax return.
I hope this information has been helpful to you. If you have any further questions or require more detailed advice, I am at your disposal.
Best regards,
Albrecht Schlüter
