What impact does a severance payment have on my tax bracket?
October 10, 2023 | 50,00 EUR | answered by Fanni Siebert
Dear tax consultant,
My name is Thomas Schmitt and I have been working in a company for 15 years, which unfortunately is now planning job cuts due to economic problems. I have been offered a severance package if I voluntarily leave the company. This severance package is very important for me financially, as I may have difficulties finding a new job in the future.
However, I am concerned about the tax implications of such a severance package. Currently, I am in tax class III, as my wife is only marginally employed. I am wondering if the severance package would affect my tax class and if I would have to expect a higher tax burden as a result. I also wonder if there are ways to minimize the tax implications of a severance package or if there are certain tax breaks that I could qualify for.
I would greatly appreciate it if you could provide me with more detailed information on this matter so that I can make an informed decision about accepting the severance package. Thank you in advance for your help.
Sincerely,
Thomas Schmitt
Dear Mr. Schmitt,
Thank you for your inquiry regarding the tax implications of a severance payment. It is understandable that you are concerned about this, especially if this severance payment is very important to you financially. I am happy to provide you with some information that may help you in making your decision.
First of all, I would like to point out that a severance payment is generally taxable. It is treated as other income and is subject to the progressive income tax rate. This means that the higher the severance payment, the higher the tax rate you will have to pay on it.
As for your tax class, a severance payment generally does not have direct implications on your tax class. Your tax class is primarily determined by your personal circumstances, such as your marital status and your spouse's income. If your wife is minimally employed and you were previously in tax class III, this tax class will remain the same after the severance payment is made.
To minimize the tax implications of a severance payment, you may consider spreading the payment over several years. This could potentially result in a lower tax rate, as your taxable income in each year would be lower.
Furthermore, there are certain tax benefits that you could take advantage of. For example, you can claim deductible expenses related to the severance payment, such as legal fees or moving costs. Additionally, a favorable tax class combination with your spouse could reduce the tax burden.
It is important that you consult with a tax advisor or a specialist in severance payments in advance to explore all tax possibilities and make an informed decision. I am happy to assist you with any further questions you may have and support you in this process.
I hope this information is helpful to you and wish you success in making your decision.
Best regards,
Fanni Siebert
Tax advisor
