Severance / Wedding
July 25, 2011 | 20,00 EUR | answered by StB Manuela Ponikwar
Hello,
I terminated my contract with the company on 01.07.2011 with a severance package of 43,000 euros. The fifth rule was applied with tax class 1 (2 children). I am now unemployed.
We would like to get married this year. However, when calculating our tax return, it is done as if we had been married for the whole year.
Should I expect to pay taxes on the severance package?
Thank you.
Dear client,
thank you for your inquiry, which I would like to answer as part of an initial consultation and taking into account your effort as follows:
Severance payments for the loss of a job are taxed as compensation according to §24 para. 1 of the Income Tax Act (EStG) under the fifth regulation of §34 EStG if the criterion of "concentration" is met and the payment is made in one year.
This means that 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 relationship (+ any benefits received that would not have otherwise existed, e.g. unemployment benefits or income from a new employment relationship) exceeds the income foregone by the end of the year that the employee would have received if the employment relationship had continued, the criterion of "concentration of income" is always met.
This seems to be the case for you, so your employer has carried out the taxation according to the fifth regulation.
The application of the fifth regulation means that the taxable severance payment is taxed as extraordinary income for the purpose of tax calculation with one-fifth as other income, and this resulting tax is multiplied by five. The fifth regulation corrects the negative effect of the severance payment on the progression (i.e. the increasing tax rate with income).
Therefore, the tax calculation looks like this for you:
1) Tax for normal income = Income without severance payment x normal or splitting tax rate (taking into account unemployment benefits, which are not taxable but subject to progression)
+ 2) Tax on severance payment = 5 x Tax on 1/5 of the severance payment
If you get married, you can choose to file jointly and use the splitting tax rate. In this case, your income is generally added together and taxed according to the splitting table rate. The taxation scheme for the severance payment remains the same. In general, taxation according to the splitting tax rate is always advantageous for a married couple. However, if your future spouse has a very high tax rate due to high income, this could have a disadvantageous effect for you.
When preparing your income tax return, your tax advisor or tax return preparation program can check at the end of the year which form of assessment is most beneficial for you as a couple, as even if you are married, you can choose to be assessed separately upon request.
By the way, the choice of tax classes only affects the amount of tax prepayments. The actual total tax burden for the year remains the same regardless of the tax class chosen.
I hope this information was helpful to you.
Best regards,
Manuela Ponikwar
Tax advisor
www.ponikwar.de
