What impact does a severance payment have on my tax return?
December 24, 2022 | 50,00 EUR | answered by Lorenzo Zimmermann
Dear Tax Advisor,
My name is Felix Otten and I have been working for many years in a company that is currently facing financial difficulties. I have been offered a severance package as the company needs to reduce its workforce. However, I am unsure about the implications this severance package will have on my tax return.
Currently, I receive a monthly gross salary of 3,500 euros and have never received a severance package before. My wife also works and we have two children. We live in a house for which we are repaying a mortgage.
My main concerns are that I do not know exactly how the severance package will be taxed and whether it could push me into a higher tax bracket. I also wonder if it is possible to optimize the taxation of the severance package in order to pay as little tax as possible.
What are the implications of the severance package on my tax return and how can I best declare it in a tax-optimized way to minimize the amount of taxes I have to pay? Are there any specific regulations or tax-free allowances that I should consider when declaring the severance package?
Thank you in advance for your help and support.
Best regards,
Felix Otten
Dear Mr. Otten,
Thank you for your inquiry regarding the taxation of your severance payment and possible tax-optimized planning options. A severance payment can indeed have an impact on your tax return, so it is important to be well informed in advance.
First of all, I must inform you that a severance payment is generally taxable. It is considered as "other income" and is therefore subject to income tax. The level of taxation depends on various factors, such as the amount of the severance payment, your previous income, and your marital status.
In your case, with a monthly gross salary of 3,500 euros and a family with two children, the severance payment could affect the amount of your income tax. It is possible that the severance payment could push you into a higher tax bracket, which could lead to a higher level of taxation.
To declare the severance payment in a tax-optimized way and to pay as little tax as possible, there are some planning options. One option, for example, would be to spread the severance payment over several years. This can reduce the tax burden, as the taxable income decreases each year.
There are also special regulations and allowances that you should consider when declaring the severance payment. For example, there is an allowance of 1,200 euros for severance payments. This amount is exempt from tax. Additionally, expenses such as costs for the professional use of a home office or travel costs can be deducted from the severance payment, thereby reducing the taxable amount.
It is advisable to consult with an experienced tax advisor to discuss your individual situation and find a tax-optimized solution together. A tax advisor can help you to explore all options and minimize your tax burden.
I hope that these information have been helpful to you. If you have any further questions, please feel free to contact me.
Best regards,
Lorenzo Zimmermann
