Ask a tax advisor on the topic of Severance pay

Severance pay - Split and Fifth Rule

March 24, 2010 | 20,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Hello,

The following situation:

Employment relationship (existing for 5 years) was terminated by mutual agreement on 30.06.2009. Currently still receiving unemployment benefits (since 01.07.09).

Employee with tax class II, regular annual salary of 32k euros.

Unfortunately, the severance payment of 100k euros was split, with 60k euros paid on 30.06.09 and 40k euros to follow on 31.03.2010.

Therefore, the "Fünftelregelung" (special tax treatment for severance payments in Germany) was not applied and the 60k euros was treated as taxable income and subject to social security contributions.

Is it possible to argue in the tax return that the second part of the severance payment still belongs to the 2009 tax year (I heard something about a "March clause" from a friend), leading to a concentration of income that would allow for the application of the "Fünftelregelung"?

If not, is there another approach to apply a reduced tax/solidarity tax rate or optimize the situation from a tax perspective?

Thank you for the information.

Dipl.BW/SB Ulrich Stiller

Dear inquirer,

Thank you for your inquiry, which I would like to answer based on your information and in the context of your question for an initial consultation as follows:

Unfortunately, you will not receive the "Fünftelregelung" (special tax treatment for severance payments).

While the severance payment can be paid in installments, it will only qualify for the "Fünftelregelung" if it is paid within ONE calendar year.

If a taxable severance amount is paid in 2009 and another in 2010, the reduced taxation does not apply (Federal Fiscal Court ruling of 16.3.1993 XI R 10/92 BStBl. 1993 II p. 479).

The "Märzklausel" (March clause) you mentioned has nothing to do with granting the "Fünftelregelung".

Developing tax optimization suggestions cannot be done based on your information and is not feasible even for 20 Euros.

I regret not being able to provide a more positive answer, but I hope I was able to assist you in some way.

Best regards,

Ulrich Stiller
Tax Advisor/Dipl. Business Economist