The one-fifth rule was not applied.
December 30, 2010 | 25,00 EUR | answered by Michael Herrmann
Hello and good morning,
I have a question:
In August 2010, I signed a termination agreement with my employer. The termination date will be December 31, 2010. The reason for the late termination was that I wanted to almost comply with the notice period due to the employment office, which was also not a problem for the employer.
Since August 2008, I have been on parental leave, and the contract was signed during this leave. From September 2008 to approximately June 2009, I received parental benefits. In 2009, my income was only 1080 euros due to a retroactive payout of profit sharing for 2008. Other than that, I had no income in 2009 and 2010, except for the half year in 2009 when I was receiving parental benefits.
The severance payment amount is 103,292 euros and has now been paid out in full with the payroll. I have now received the payroll statement and was shocked to see that the employer did not apply the five-fifths rule. Can you tell me why?
Based on the points mentioned above, it should definitely apply, right?
Dear inquirer,
First of all, 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. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
If you want to benefit from the 1/5 rule in a severance payment, several criteria must be met. In particular, there must be a "clustering of income" through compensation within the meaning of the Income Tax Act (EStG § 24 No. 1).
"Clustering of income" means that you receive more money through the severance payment than you would have received if the employment relationship had continued (Federal Fiscal Court ruling of 04.03.1998 - BStBl II p. 787).
However, the employer must be able to verify the requirements necessary for applying the one-fifth rule. When it comes to the requirement of "clustering of income", this can be difficult if there is no clear clustering of income from the evaluation of the known wages alone. Although the employer can include the other income of the employee in the assessment of the clustering of income, he is not obliged to do so. The following procedure applies to the employer for the application of the one-fifth rule:
If the employer can see from the wages he has paid that the taxable part of the severance payment, together with the other wages, leads to a clustering of income, he is legally obliged to apply the one-fifth rule without the need for a request from the employee.
If a clustering of income only arises when considering the other income of the employee, the employer can apply the one-fifth rule if the employee informs him of this income, i.e., the employee must request the application of the one-fifth rule from the employer.
Therefore, the employer may only apply the one-fifth rule if the required comparison calculation unmistakably shows that there is a clustering of income. I cannot assess this based on the description of the situation.
Applying the one-fifth rule means that the taxable extraordinary income is taxed as other income for tax purposes with one-fifth, and the income tax allocated to this one-fifth is multiplied by five. The one-fifth rule does not mean that only one-fifth needs to be taxed. The tax savings are accordingly lower. Please check again whether the tax relief was actually not applied in the income tax deduction.
If the employer mistakenly failed to apply the correct taxation, you can correct any potential disadvantage by submitting the income tax return in the assessment procedure. The severance payment must be entered in line 19 of the wage tax certificate for this purpose.
I hope that with this information, I have provided you with a sufficient overview of the situation within the scope of your commitment and this initial consultation and remain
Yours sincerely
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax advisor
