Ask a tax advisor on the topic of Severance pay

Tax calculation

April 17, 2012 | 40,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Question:
In which year is the payout of the severance payment most advantageous for me in terms of taxes - when do I keep the most net amount of the severance payment in 2012, 2013 or 2014?

Employee in the industry. Currently in a partial retirement arrangement. Duration from 1.11.2010 to 31.10.2013 (block model). Retiring from 1.11.2013. Exemption phase starts on 1.5.2012.
Requirements of § 2 of the Partial Retirement Act are met. It was contractually agreed that the employment relationship was entered into at the instigation of the employer and a severance payment of €96,600 is to be paid in case of job loss. I can request the payout of the severance payment as early as the end of April 2012.

Personal data:
Tax class I
No church tax
No tax-free allowance
Year of birth 1950
No other income
Entry 1.1.2007
Exit 31.10.2013 (retirement from 1.11.13)

Income 2012 (annual amounts):
€39,996 salary in partial retirement per year (12 months)
€20,364 supplementation amount per year (12 months) subject to progression clause
€7,104 non-cash benefit for company car per year (12 months)
€96,600 severance payment

Income 2013 (annual amounts):
€33,330 salary in partial retirement per year (10 months)
€16,970 supplementation amount per year (10 months) subject to progression clause
€592 non-cash benefit for company car per year (1 month)
€3,300 state pension per year (2 months)
€2,800 company pension per year (2 months)
€96,600 severance payment

Income 2014 (annual amounts):
€19,800 state pension per year (12 months)
€16,800 company pension per year (12 months)
€96,600 severance payment

Dipl.BW/SB Ulrich Stiller

Dear client,

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

Due to the information provided, only an approximate calculation can be made taking into account the current Income Tax Act of 2012.

Without considering church tax and assuming that the conditions for tax reduction are met through the application of the fifth rule, you will receive a payout amount of approximately 62,000 euros in 2014 on the gross severance payment of 96,600 euros as the best result, as in 2014 there are no progressive earnings, the company pension is taxed as a retirement benefit, and the old-age pension is only subject to income tax based on the tax assessment ratio.

However, disadvantages may arise from possibly planned changes in the Income Tax Act of 2013 or 2014.

I hope that my explanations have been helpful to you.

Sincerely,

Ulrich Stiller
Tax consultant / Diplom Business Economist