Do I have to declare my severance payment to the tax office?
July 6, 2023 | 50,00 EUR | answered by Fanni Siebert
Dear tax advisor,
my name is Hans Zellmann and I have been working for over 10 years in a company that has issued a redundancy notice due to economic problems. I have been offered a severance package, which I would like to accept. However, I have heard that severance payments are taxable and I am wondering if I need to declare them to the tax office.
I am concerned that the severance payment could increase my tax burden and I want to ensure that I fulfill all my tax obligations properly. My current monthly income is 3,000 euros gross and I am single, without children.
Could you please explain to me if and to what extent I have to declare the severance payment to the tax office? Are there ways to save taxes or avoid tax payments? What tax classes apply to severance payments and are there any tax exemptions that I can take advantage of?
Thank you in advance for your help and support.
Sincerely,
Hans Zellmann
Dear Hans Zellmann,
Thank you for your inquiry regarding the tax treatment of severance payments. Severance payments are usually subject to taxation and must be reported to the tax authorities. The amount of tax levied on the severance payment depends on various factors, such as the amount of the severance sum, your previous income situation, and your tax rate.
In general, severance payments are treated as other income and taxed at the individual tax rate. There is a possibility that the severance payment may lead to a higher tax rate due to the progressive tax structure. However, there are also ways to save taxes or avoid tax payments.
One option is to spread the severance payment over several years to reduce the tax rate. Additionally, you can check if you are eligible for other tax benefits, such as deductions for business expenses or special expenses, to reduce your tax burden.
Severance payments are subject to the same tax brackets as regular income. Since you are single and childless, you are likely in tax bracket I. However, there are no specific tax allowances for severance payments that you can claim.
It is advisable to seek advice from a tax advisor or professional to analyze your individual tax situation and discuss ways to optimize your tax burden. You should also ensure that you correctly report your severance payment in your tax return to avoid possible underpayments or tax consequences.
I hope this information helps. If you have any further questions, please feel free to contact me.
Best regards,
Fanni Siebert
Tax advisor
