How long do I have to pay taxes on a severance package?
April 15, 2023 | 40,00 EUR | answered by Fanni Siebert
Dear tax advisor,
My name is Karl Otremka and I have been working for my current employer for 15 years. Now there is talk of a redundancy dismissal and I have been offered a severance package. I am unsure of how long I have to pay taxes on this severance package and what the tax implications will be for me. I am worried that I may have to pay too much taxes or that I will miss the deadline for paying taxes on the severance package, resulting in tax disadvantages.
Can you please explain to me exactly how long I have to pay taxes on the severance package and what tax aspects I should consider? Are there any tax options to manage the severance package in a tax-efficient way? I want to make sure that I correctly pay taxes on the severance package and avoid any tax mistakes.
Thank you in advance for your help and support.
Sincerely,
Karl Otremka
Dear Mr. Otremka,
Thank you for your inquiry regarding the taxation of a severance payment. As an experienced tax advisor specializing in severance payments, I can explain to you exactly how long you have to pay taxes on the severance payment and what tax aspects you should consider.
In general, a severance payment made in the context of a termination for operational reasons is subject to taxation. The severance payment is taxed at your personal tax rate, which is based on your taxable income. However, there is a tax-free allowance up to which the severance payment remains tax-free. This allowance is currently 1/4 of the gross annual salary you received in the year before the termination, up to a maximum of 50,000 euros.
Now, regarding the question of how long you have to pay taxes on the severance payment: The severance payment is taxed in the year in which it is paid to you. This means that the severance payment must be declared in your tax return in the year of payment. Therefore, you do not have to wait until the end of the year but can already pay taxes on the severance payment in the year it is paid out.
When it comes to tax-optimized management of the severance payment, there are various ways to minimize the tax burden. One option is to spread the severance payment over several years in order to benefit from a lower tax rate. Utilizing tax allowances and tax-deductible expenses can also help reduce the tax burden.
It is important that you correctly pay taxes on the severance payment to avoid tax errors. If you are unsure, I recommend that you consult a tax advisor or a wage tax assistance association to clarify your tax questions in detail and ensure that you are doing everything correctly.
I hope that this information has been helpful to you and I am available to assist you further if you have any more questions.
Yours sincerely,
Fanni Siebert
