Severance payment and tax return
May 6, 2011 | 20,00 EUR | answered by StB Manuela Ponikwar
After being terminated due to operational reasons in May 2010, I received a severance payment of €60,000. Tax amounting to €15,000 was withheld according to the "Fünftelregelung" (a special tax calculation method in Germany). Does this mean that €3,000 from the "Fünftelregelung" will be applicable in the tax return for 2010? Will this also be the case for the following 4 years? Do I need to declare the severance payment and the paid taxes in each tax return?
Thank you in advance.
Dear Client,
thank you for your inquiry, which I would like to answer as follows within the scope of an initial consultation and taking into account your efforts:
Severance payments for the loss of a job are taxed as compensation according to §24 No. 1 EStG under the fifth rule §34 EStG if the criterion of "concentration" is met and the payment is made in one year.
That means you must have more income in the relevant year due to or because of the severance payment than if the employment relationship had continued unchanged.
If the compensation paid on the occasion of the termination of the employment exceeds the income lost by the end of the assessment period that the employee would have received if the employment had continued, the criterion of income concentration is always met.
Your total income is always taken into account (including, for example, unemployment benefits, your income from the new employer, and other types of income such as rental income).
A comparison calculation is therefore made (usually) with the previous year.
If you had a higher total income in the year of the severance payment than in the comparison period, the criterion of concentration is met. Then the taxation is reduced according to the fifth rule.
The application of the fifth rule means that the taxable severance payment is taxed as extraordinary income for tax calculation purposes, with one-fifth taxed as other income and the tax on this one-fifth being multiplied by five.
So, the fifth rule corrects the negative effect of the severance payment on the progression (i.e. the tax rate increasing with income).
Your employer has already carried out the taxation according to the fifth rule. The tax office will check the correct application of the rule as part of the income tax assessment (tax return) and will usually want to see the termination/resignation agreement.
The severance payment is only taken into account once in the year of payment of the severance. The 15,000 EUR tax under the fifth rule therefore applies exclusively to 2010. There will be no further taxes in future years.
I hope this information helps you.
Best regards,
Manuela Ponikwar
Tax consultant
www.ponikwar.de
