Can I receive my severance payment tax-free?
May 23, 2023 | 55,00 EUR | answered by Lorenzo Zimmermann
Dear tax advisor,
My name is Eiko Weber and I am currently working in a company that is planning a restructuring. As part of this, I have been offered a severance payment if I voluntarily leave the company. I am unsure if I can receive this severance payment tax-free and what the tax burden would be in my case.
My current gross monthly salary is 3,500 euros and I have been working in the company for 10 years. The offered severance payment amounts to 2 months' salary per year of employment. This means that I have been offered a severance payment of 20,000 euros in total.
I am worried that the severance payment will be heavily taxed and that I will end up with less money than expected. Are there ways to receive the severance payment tax-free or at least minimize the tax burden? What do I need to consider in order to maximize tax benefits?
I hope you can help me with this question and show me possible solutions. Thank you in advance for your support.
Sincerely,
Eiko Weber
Dear Mr. Weber,
Thank you for your inquiry regarding the tax treatment of a severance payment as part of a restructuring. I would be happy to assist you with your question and provide you with possible solutions.
It is important to know that severance payments are generally taxable. The amount of tax depends on various factors, such as the amount of the severance payment, your length of service in the company, and your current gross monthly salary. In your case, the offered severance payment is 20,000 euros, which means you will receive 2 gross monthly salaries per year of employment.
To minimize the tax burden, there are various tax planning options that you can consider. One option would be to spread the severance payment over several years in order to be taxed at a lower rate. Another option would be a one-time payment into a company pension fund, which may be tax-advantaged under certain conditions. Utilizing tax allowances and lump sum amounts can also help reduce the tax burden.
It is advisable to seek advice from a tax advisor to find the optimal tax planning for your severance payment. A tax advisor can help you consider all tax aspects and work out the best possible solution for you.
I hope that this information has been helpful to you. If you have any further questions or would like individual advice, please feel free to contact me.
Kind regards,
Lorenzo Zimmermann
