How does a severance payment affect my tax class?
October 20, 2022 | 45,00 EUR | answered by Edith Hartmann
Dear tax advisor,
my name is Yvonne Schlosser and I am currently classified in tax class 1. Recently, I received an offer for a severance package from my employer, as my position is being eliminated due to restructuring. I am unsure about how a severance package will affect my tax class and what tax implications this could have for me.
Currently, I receive a monthly salary and am therefore classified in tax class 1. Since I will receive the severance package in a lump sum, I am wondering if this will change my tax class and if I could potentially move into a different tax class as a result. Additionally, I am concerned about whether the severance package will be treated more favorably for tax purposes than my regular income, and if I may face a high tax bill at the end of the year.
I would greatly appreciate it if you could provide me with more information on how a severance package affects my tax class and if there are ways to take advantage of tax benefits or avoid disadvantages. Are there any special regulations or exemptions that I should consider when dealing with the taxation of my severance package?
Thank you in advance for your support and advice.
Sincerely,
Yvonne Schlosser
Dear Mrs. Schlosser,
Thank you for your inquiry regarding the tax implications of a severance payment in your current tax class 1. It is understandable that you are concerned about possible tax consequences, especially when it comes to a larger sum like a severance payment.
First of all, it is important to know that a severance payment is generally subject to tax. It is added to the taxable income and therefore subject to the progressive tax rate. This means that the higher the severance payment, the more taxes you will have to pay on it. Since you are currently classified in tax class 1, the general tax rate applies to you, which leads to a higher tax burden for higher incomes.
However, a severance payment does not have a direct impact on your tax class. Your tax class remains tax class 1, even if you receive a severance payment. However, it may result in you having to make a tax payment at the end of the year if the severance payment was not adequately taxed. It is therefore advisable to pay taxes on the severance payment immediately upon receipt or at least to set up a tax reserve to avoid possible payments later on.
There are also ways to take advantage of tax benefits or avoid disadvantages. For example, you can see if you can receive the severance payment in installments to spread the tax burden. Additionally, there are certain tax-free allowances that you can utilize when taxing your severance payment, such as the allowance for extraordinary income.
It is advisable to seek individual advice in your specific case to achieve the best possible tax treatment of your severance payment. A tax advisor can help you analyze your tax situation and take advantage of possible tax benefits.
I hope this information was helpful to you. If you have any further questions or would like more detailed advice, I am at your disposal.
Best regards,
Edith Hartmann
