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Time of payment

Tax class 4, joint assessment. Total amount of income: 88,391.--

There will be a severance payment of EUR 111,375, of which EUR 30,000 will go into company pension, leaving EUR 81,375 as severance payment.

I was continuously employed in 2009. I can choose the time of the severance payment. I will be unemployed from January 2010.

Is it better for me to receive the severance payment in December 2009 or in January 2010?

What is the net savings amount?

Irmingard Huber-Stempfel

Dear questioner,
in German tax law, the principle of tax progression applies, meaning that as income increases, the tax burden also increases. Therefore, in principle, a payout in January 2010 is more favorable. According to the case law of the Federal Fiscal Court (BFH), the taxation of the severance payment occurs at the time when the employment relationship is legally terminated. With the effective termination of the employment relationship, the employee's right to remuneration ends, so any amounts paid beyond that cannot be considered as compensation for already contractually acquired claims. In summary, if the employment relationship ends in January 2010 and a severance payment is made at that time, it will be taxed in the year 2010. If your assumption is correct that you will not earn significant income in 2010, postponing the payout to 2010 is more favorable. However, the receipt of unemployment benefits is also subject to taxation due to the progression clause, making the calculation more complex. I recommend that you consult a tax advisor with detailed financial information to calculate the tax implications.
My advice is based on the information provided in the initial consultation.
Sincerely,
I. Huber-Stempfel
- Tax advisor and lawyer

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Irmingard Huber-Stempfel