Ask a tax advisor on the topic of Severance pay

Fifth rule and tax rate

May 5, 2011 | 50,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Dear Sir or Madam,

I have agreed with my previous employer to terminate my employment at the end of January with a severance payment. Unfortunately, I am currently having a difficult discussion with the tax advisor of my former company regarding the tax to be assessed.

Specifically for tax class I and church tax obligation:

My annual salary in 2010 was 72,000 euros. I left at the end of January, so my taxable income for 2011 is 6,000 euros. In addition, a severance payment of 100,000 euros was agreed upon. This should result in a clustering of income and the application of the "fifth rule". According to my research and calculations (e.g. http://www.sueddeutsche.de/app/jobkarriere/abfindungsrechner/), this would result in a tax burden of approximately 22,000 euros (income tax, solidarity surcharge, church tax).

However, the tax advisor of my former employer, using DATEV calculations, comes to a significantly higher tax burden of almost 40,000 euros. Apparently, DATEV assumes a fictitious income based on the previous year and then applies the "fifth rule". However, I do not plan to work this year.

Could you please explain to me which calculation is correct?

Kind regards,

Dipl.BW/SB Ulrich Stiller

Dear Client,

Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your involvement within a first consultation as follows:

Based on the information provided, I assume that the fifth rule applies, as the severance payment of 100,000 euros exceeds the foregone income of 72,000 euros, resulting in an accumulation of income that leads to the application of the fifth rule. Applying tax class I (basic table) and a church tax rate of 8%, the following results are obtained:

Income tax 19,390.00

Solidarity surcharge 1,066.45

Church tax 1,551.20

Total taxes 22,007.65

Without the fifth rule:

Income tax 35,598.00
Solidarity surcharge 1,957.89
Church tax 2,847.84

Total taxes 40,403.73

I suspect that the fifth rule has not been taken into account.

I hope I was able to assist you.

Best regards,

Ulrich Stiller
Tax consultant/Diploma in Business Administration