Taxes
November 28, 2010 | 30,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Dear Tax Advisor,
I will be leaving the company on December 31, 2010 through a termination agreement. The company will pay me a severance payment of 68500 Euro. Until the end of my employment, I will receive a gross annual salary of 61000 Euro. For the year 2011, I am not expecting any salary initially, possibly just unemployment benefits or start-up grants.
Now, my questions to you:
1. How will my employer tax my severance payment - still for the year 2010? It is stated "The severance payment will be included in the regular salary payment following the termination date (December 31, 2010)", in my case, it will be included in the December salary, which I will receive in early January. If my employer taxes my severance payment for the year 2010, my taxable income would be 129500 Euro.
2. If I have to pay taxes on the severance payment in 2011 (since I can only access it then): Will my employer transfer the full severance payment to me in January or will they still deduct income tax, solidarity surcharge, and church tax?
3. And, if I have to pay taxes on the severance payment: Will my employer at least automatically calculate the severance amount according to the fifth rule or do I need to remind them about it?
Yours sincerely
Dear Consultee,
Thank you for your inquiry, which I would like to answer based on your information and in the context of your commitment to an initial consultation as follows:
The severance payment is always subject to income tax withholding when paid out as other income (§ 39b para. 3 EStG). If the severance payment, as I assume, exceeds the lost income, the so-called fifth-rule applies. This fifth-rule is already taken into account by your employer when deducting income tax. You can of course inform your employer about the application of the fifth-rule. Failure to apply the fifth-rule by your employer can be rectified in the income tax return assessment procedure, meaning you will not suffer any disadvantages.
Since the severance payment does not constitute regular income, you received the severance payment in the year it was received by you (§ 38a para. 1 sentence 3 EStG), in your case in the year 2011, also subject to income tax withholding. Therefore, the December salary (taken into account in 2010) and the severance payment (taken into account in 2011) must be accounted for separately.
Whether anything can be arranged in your favor should be evaluated BEFORE drafting the severance agreement AND payment. For this purpose, you should consult a tax advisor.
I hope my explanations have been helpful to you.
Kind regards,
Ulrich Stiller
Tax Advisor/Diploma in Business Administration
