Do I have to pay taxes on a severance payment?
July 14, 2023 | 40,00 EUR | answered by Albrecht Schlüter
Dear Tax Advisor,
My name is Alice Mattes and I have been working in a medium-sized company for 15 years. Now there is a restructuring happening and I have been offered a severance package. I am wondering if I need to pay taxes on this severance package and what the tax burden would be in my case. I am worried that the severance package could negatively impact my financial situation, as I am not sure how much of it will actually end up in my hands.
My monthly gross salary is 3,500 euros and I have no other income besides this salary. The severance package amounts to 30,000 euros. I am married, have two children, and my husband also works full-time. We have a combined household income of about 5,000 euros net per month.
I would like to know if there are ways to make the severance package tax-efficient or if I can minimize the tax burden through certain measures. I am also interested in whether it would be advisable to divide the severance package or to invest it in a certain form of investment to save on taxes.
I look forward to your professional advice and thank you in advance for your help.
Yours sincerely,
Alice Mattes
Dear Ms. Mattes,
Thank you for your inquiry regarding your severance payment and the associated tax implications. As a tax advisor specializing in severance payments, I am happy to assist you and provide you with some information on the topic.
In general, a severance payment is subject to taxation and is subject to income tax. The tax burden depends on various factors, such as the amount of the severance payment, your tax class, your income, and the period over which the severance payment is paid out.
In your case, the severance payment is 30,000 euros. Since you already have a monthly gross salary of 3,500 euros and no additional income, the severance payment will be added to your taxable income. Depending on your tax class and other tax deductions, the tax burden may vary.
There are various ways to minimize the tax burden. One option is to consider whether it is beneficial to divide the severance payment and pay it out over several years. This can spread the tax burden over different years, often resulting in a lower tax liability. You can also consider investing the severance payment in a tax-efficient manner, such as in a company pension plan or other tax-optimized investment forms.
Since you are married and your husband also works, you should also consider the tax implications on your household income. It may be wise to divide the severance payment to avoid a higher tax rate.
It is important to seek professional advice to make the optimal tax decisions for you. I am available for online consultations to analyze your individual situation and provide you with specific recommendations.
I hope I could give you a first insight into the topic of severance payments and taxes, and I am happy to assist you with any further questions.
Best regards,
Albrecht Schlüter
