Do I have to pay social security contributions on my severance payment?
September 21, 2023 | 40,00 EUR | answered by Edith Hartmann
Dear tax advisor,
My name is Tatiana Höfer and I recently received a severance payment from my employer. Now I am wondering if I have to pay social security contributions on this severance payment.
Background information: I have been employed at a company for many years and was recently terminated as part of a restructuring. As compensation for the loss of my job, I was offered a severance payment, which I have already received.
My concern is that I am not sure if and to what extent social security contributions are due on the severance payment. I would like to avoid any additional payments or other unpleasant consequences.
Could you please explain to me if I have to pay social security contributions on my severance payment and if so, to what extent? Are there any possible ways to minimize or avoid these contributions? I would greatly appreciate your support and expertise in this matter.
Sincerely,
Tatiana Höfer
Dear Mrs. Höfer,
Thank you for your inquiry regarding social security contributions on your severance payment. It is understandable that you are concerned and want to ensure that you are considering all tax aspects correctly.
In general, a severance payment made in the context of a termination or termination agreement is subject to taxation. This means that you must pay income tax on the severance payments you receive. But what about social security contributions?
Social security contributions are typically only levied on regular income, such as your normal salary. However, severance payments are a one-time payment and are therefore not considered as contributory income. This means that you generally do not have to pay social security contributions on your severance payment.
There are exceptions, however, where social security contributions may still be due. For example, if the severance payment is made in installments over several years and thus takes on the character of wages. In such a case, it may be necessary to pay social security contributions on the severance payment.
To be sure, I recommend that you consult a tax advisor or an expert in labor law. They can review your individual situation and explain to you the exact tax and social security law consequences of your severance payment.
Regarding possible ways to minimize or avoid social security contributions, I cannot provide specific advice as this depends on many factors. However, it may be useful to explore tax planning options to optimize your tax burden.
I hope this information is helpful to you and I am available to assist you if you have any further questions.
Sincerely,
Edith Hartmann
Tax Advisor
