tax severance pay
October 27, 2021 | 40,00 EUR | answered by Steuerberater Knut Christiansen
Hello,
I will voluntarily leave my company on 31.01.2022 and accept the severance offer. I have been on sick leave since April of this year and am receiving sick pay. This will continue until my final departure from the company.
Now my question is: Is it more advantageous for me tax-wise to receive the severance payment in the year 2021 (there is also the option to leave by 31.12.2021) or to choose the option for payment in the following year? (I will return to Austria afterwards and will not start working again until the autumn of 2022.)
I look forward to your response!
Best regards
Good evening,
in general, it is expected to be cheaper if you receive the severance payment at the beginning of 2022. I assume that you will still be living in Germany in January 2022 and therefore be subject to unlimited income tax liability in Germany.
The background of my assumption is that sickness benefits received in Germany are subject to the progression clause, which increases your personal tax rate. The severance payment itself is also subject to taxation, but can usually be taxed according to the "Fünftelregelung", which results in mitigating the progression (i.e. increase in tax rate) somewhat. However, considering your salary, sickness benefits, and severance payment, it is likely that your tax rate in 2021 would be higher overall than if the payment was made in 2022. Therefore, the income tax payable in Germany would also be higher.
Since you will only receive the severance payment in Germany next year and then receive income in Austria at the end of the following year, a more favorable taxation is expected to result. Please note that an exact calculation cannot be provided here, as the exact numbers are missing and a complex (and therefore more expensive) tax calculation would need to be simulated for both scenarios. Therefore, I must point out that this is only an assessment based on the information you provided.
Please feel free to contact me if you have any further questions.
Best regards,
Knut Christiansen
Tax Advisor
