How does a severance payment affect my tax bracket?
October 10, 2023 | 40,00 EUR | answered by Lorenzo Zimmermann
Dear tax advisor,
I am Hildegard Böhm and I recently received a severance payment from my employer. Now I am thinking about how this severance payment will affect my tax class. Currently, I am in tax class III, as my husband is not employed and I am the sole earner in our family.
I am wondering if the severance payment will significantly increase my taxable income, causing me to move into a higher tax class and therefore pay more taxes. I am also concerned about whether the severance payment will have an impact on my social security contributions and if I need to make a tax prepayment to the tax office.
I would be very grateful if you could explain to me how the severance payment will affect my tax class and if there are ways to minimize the tax burden. Are there specific tax regulations or tax-free amounts that I can take advantage of to reduce my tax liability? I want to make sure that I understand and make the most of all the tax aspects of my severance payment.
Thank you in advance for your support and expert advice.
Kind regards,
Hildegard Böhm
Dear Mrs. Böhm,
Thank you for your inquiry regarding the tax implications of your severance payment. It is understandable that you are concerned about how these additional income will affect your tax class and social security contributions. I am happy to explain to you the relevant tax aspects related to your severance payment.
First of all, it is important to know that severance payments are generally subject to tax. The severance payment will be added to your taxable income and may result in you moving into a higher tax class. This means that you may have to pay a higher tax rate on your total income. In your case, as a single earner in tax class III, this could mean that you have to pay more taxes.
However, there are tax regulations that can help you minimize your tax burden. One possibility is to use tax allowances and tax benefits. For example, you could claim the standard deduction for work-related expenses or deduct extraordinary burdens to reduce your tax burden.
Furthermore, you can check if there are special tax benefits for your severance payment, such as the "Fünftelregelung". This regulation allows severance payments to be taxed over five years, which can result in a lower tax burden. It is important that you explore all tax possibilities and take advantage of them to optimize your tax burden.
Regarding your social security contributions: The severance payment itself is not subject to social security contributions. However, your severance payment may indirectly affect your social security contributions, as these are usually calculated based on your regular earnings. It is possible that your contributions may increase due to the higher income from the severance payment.
As for tax prepayments: Generally, you do not have to make tax prepayments when you receive your severance payment. The taxes on your severance payment can either be withheld directly by your employer or you may have to pay them later when filing your income tax return. However, it is advisable to discuss your financial situation with a tax advisor to ensure that you do not overlook any tax prepayments.
In conclusion, it is important to consider your tax situation in the overall context and seek tax advice if necessary. A professional tax advisor can help you understand and make the most of all tax aspects of your severance payment.
I hope that my response is helpful to you and I am available for further questions.
Sincerely,
Lorenzo Zimmermann, Tax Advisor
