Is there a maximum limit for tax-free severance pay?
July 19, 2022 | 40,00 EUR | answered by Lorenzo Zimmermann
Dear Tax Advisor,
My name is Zofia Vollbrecht and I am currently working for a company that has recently informed me about a possible severance package. I am unsure if there is a maximum limit for tax-free severance packages and how I can best optimize the tax treatment of my severance.
My current situation is as follows: I have been working for the company for 10 years and am set to receive a severance package due to a restructuring. Since I have not received a severance package in the past, I am unsure how to best consider the tax aspects. I am worried that I may end up paying too much tax on the severance and would therefore like to know if there is a maximum limit for tax-free severance packages.
My question is: Is there a maximum limit for tax-free severance packages and how can I best optimize the tax treatment of my severance to pay as little tax as possible? I would appreciate a detailed explanation and possible solutions that will help me receive my severance in a tax-efficient manner.
Thank you in advance for your assistance.
Sincerely,
Zofia Vollbrecht
Dear Mrs. Vollbrecht,
Thank you for your inquiry regarding your severance pay and the tax aspects associated with it. It is understandable that you are concerned about having to pay too much tax on your severance pay. I will be happy to explain in detail whether there is a maximum limit for tax-free severance pay and how you can optimize the tax treatment of your severance pay.
Firstly, I must mention that there is indeed a maximum limit for tax-free severance pay. The legislator has stipulated that severance payments up to an amount of 15,000 euros are tax-free. However, this regulation applies only if the severance pay is paid within the framework of a so-called "mutual termination agreement". This means that you and your employer mutually agree on the termination of the employment relationship and the payment of the severance pay.
In your case, as you are supposed to receive a severance pay due to a restructuring, it is very likely that your severance pay will be tax-free up to an amount of 15,000 euros. However, it is important that the termination agreement is formulated accordingly and all legal requirements are met to ensure the tax exemption.
To optimize the tax treatment of your severance pay and minimize the amount of tax you have to pay, I recommend seeking professional tax advice. An experienced tax advisor can help you calculate the tax implications of your severance pay and provide you with tips on how to optimize the tax treatment of your severance pay. There may also be other tax planning options that can help you minimize your tax burden.
In conclusion, it is important to inform yourself early on about the tax aspects of a severance pay and, if necessary, seek professional help. This can help you optimize your severance pay and receive it in a tax-efficient manner.
I hope this information is helpful to you and I am available for any further questions you may have.
Best regards,
Lorenzo Zimmermann
