Is a severance payment taken into account in my unemployment benefits?
August 31, 2022 | 40,00 EUR | answered by Albrecht Schlüter
Dear tax consultant,
My name is Konrad Fischer and I am currently working in a company that has to downsize due to economic difficulties. I have been offered a severance payment to terminate my employment. Now I am worried whether this severance payment will be taken into account for my unemployment benefits.
My previous job situation was stable and I regularly earned my income through my salary. With the termination and the severance payment, I am now entitled to unemployment benefits to support myself. Since I am entering financial dependency, I want to ensure that the severance payment does not have any negative impact on my unemployment benefits.
I am concerned that the severance payment will be considered as income and therefore my unemployment benefits may be reduced or even cut off. Therefore, I am wondering how I can prevent the severance payment from being taken into account for my unemployment benefits. Are there ways to structure the severance payment tax-wise so that it is not considered as income?
I hope you can assist me in this matter and provide me with possible solutions.
Sincerely,
Konrad Fischer
Dear Mr. Fischer,
Thank you for your inquiry regarding the severance payment in relation to your unemployment benefits. It is understandable that you are concerned about your financial situation and want to ensure that the severance payment does not have any negative impact on your unemployment benefits.
In general, a severance payment is usually considered as income and therefore will be deducted from your unemployment benefits. This means that your unemployment benefits could be reduced if you receive a severance payment. However, there are certain legal regulations and options to structure the severance payment in a way that it is not considered as income for tax purposes.
One option is to structure the severance payment using a so-called "fifth rule." In this case, the severance payment is divided over five years and only one-fifth is counted as income annually. This can help to benefit from tax advantages for the severance payment and minimize the impact on your unemployment benefits.
It is important to consider other factors as well, such as the amount of the severance payment, your individual tax situation, and the specific legal regulations regarding severance payments and unemployment benefits.
I strongly recommend that you consult with an experienced tax advisor to discuss your individual situation and develop possible solutions. A tax advisor can help you optimize the tax structure of the severance payment and ensure that your unemployment benefits are not negatively affected.
I hope this information is helpful to you and wish you success in managing your financial situation.
Best regards,
Albrecht Schlüter
