How is a severance payment taxed? Does a severance payment need to be taxed at all?
February 21, 2013 | 25,00 EUR | answered by StB Steffen Becker
On 07.02.2013, I was 53 years old and had been with the company for 16 years when I attended the conciliation hearing at the labor court. A settlement was reached by mutual agreement, in which it was determined that my former employer must pay me my January 2013 monthly salary of 2300 gross (net 1500-1600), as well as a "social severance payment" of 3000 gross. When I received my pay slip, I was shocked to see that I had received almost nothing net from this money. I must also mention that I have been registered as unemployed since 07.01.2013. According to the employment office, I will receive monthly unemployment benefits of 900.30. Attached is the calculation (pay slip) from my former employer. I now hope for a binding answer from you on whether everything was calculated correctly.
Kind regards
Dear inquirer,
Thank you for your inquiry. I will answer this within the scope of an initial consultation based on the information provided by you. Missing or incorrect information can affect the legal outcome.
Severance payments have been subject to taxation since the year 2006. The taxable gross of €5,300 is therefore correct.
In your income tax return for 2013, you can request that the severance payment be taxed according to § 34 of the Income Tax Act if this is more favorable. Whether this is more favorable will be determined by the tax office.
However, social security contributions do not need to be deducted from severance payments, unless it is a settlement of overdue salary claims - in that case, there is no exemption from social security.
If your case involves a genuine severance payment and not a settlement of overdue salary claims, the severance payment should be exempt from social security. In your payslip, a social security gross of also €5,300 is stated, meaning the severance payment was subject to contributions and not exempt from social security. This would not be correct in the case of a genuine severance payment.
I hope I could assist you.
Sincerely,
Steffen Becker
Tax adviser
stb-becker@arcor.de
