Germany Severance Tax Calculator (Abfindung, Fünftelregelung)

About the Germany Severance Tax Calculator (Abfindung, Fünftelregelung)

Work out what is left of a German severance payment (Abfindung) after income tax, the solidarity surcharge (Solidaritätszuschlag, Soli) and church tax, with and without the Fünftelregelung of § 34 EStG. A severance for losing your job is compensation (Entschädigung, § 24 No. 1 EStG) and counts as extraordinary income: in the income tax assessment its tax is five times the extra tax that a fifth of it would cost on top of your other income, so less of it reaches the higher tariff zones.

Enter the severance, your other taxable income for the same year and your assessment. A single person with €45.000 of other taxable income keeps €37.557,97 of a €60.000 severance with the rule, against €34.369,94 without it. The calculator uses the income tax tariff of § 32a EStG, shows the working step by step and explains when the rule saves nothing. Nothing you type leaves your browser. Without a pass the page gives a free preview of your own result: whether the Fünftelregelung applies and the labels of each table’s first rows, with the severance after tax and every other figure hidden until you unlock it with a Pro pass.

How the Fünftelregelung works

§ 34(1) EStG takes your other taxable income for the year, the remaining income R, and the severance A:

• tax on the severance = 5 × (income tax on R + A ÷ 5 − income tax on R);
• income tax for the year = income tax on R + the tax on the severance;
• if R is negative but the whole taxable income is positive, the income tax is five times the tax on a fifth of the whole taxable income (sentence 3).

Each income is rounded down to full euros and each tax down to the full euro, as § 32a(1) says. A joint assessment uses the splitting tariff: twice the tax on half the joint income (§ 32a(5)). The solidarity surcharge is 5,5% of the income tax, nothing up to €20.350 of income tax (€40.700 joint), and in between never more than 11,9% of the amount above that threshold (§ 3 and § 4 SolZG). Church tax is 8% of the income tax in Baden-Württemberg and Bavaria and 9% in the other federal states (EKD).

The income tax tariff (§ 32a EStG)

§ 32a(1) EStG for one person, x being the taxable income in full euros:

• up to €12.348 (the basic allowance, Grundfreibetrag): no tax;
• €12.349 to €17.799: (914,51 × y + 1.400) × y, with y = (x − €12.348) ÷ 10.000;
• €17.800 to €69.878: (173,10 × z + 2.397) × z + 1.034,87, with z = (x − €17.799) ÷ 10.000;
• €69.879 to €277.825: 0,42 × x − 11.135,63;
• from €277.826: 0,45 × x − 19.470,38.

When the Fünftelregelung saves nothing

The rule helps by keeping most of a severance out of the higher tariff zones. If your other income already reaches the 42% zone (from €69.879, €139.758 joint) and the severance does not push your income past €277.825 (€555.650 joint), a fifth is taxed at 42% just like the whole, and the saving is nil, give or take a few euros of rounding. The same holds in the 45% zone. The less other income you have in the year, the larger the saving: with no other income, a severance of up to five times the basic allowance bears no income tax at all. The table "The saving at other incomes" shows the effect for your own severance.

Payroll tax and your tax return

Your employer withholds payroll tax (Lohnsteuer) on the severance as a one-off payment under § 39b(3) EStG, which has no Fünftelregelung: the full tax is withheld. The reduction comes with your income tax assessment, so declare the severance in your tax return as compensation (Entschädigung): the difference is refunded with the assessment. Whether a payment counts as extraordinary income, for example when it is paid in instalments over two tax years, is for your tax office to decide.

Church tax on a severance

Church tax follows the income tax, so the Fünftelregelung lowers it too. On top of that, many churches reduce the church tax on extraordinary income such as a severance by up to 50% when you apply to them; the religious communities in Bavaria grant a waiver only on the general hardship grounds of § 227 of the Fiscal Code (EKD: Erlass). The calculator shows the most such a waiver could take off; it does not deduct it.

Limitations

• You enter your other taxable income yourself: the calculator does not work out taxable income from gross pay, social insurance contributions or allowances.
• Children: the solidarity surcharge and church tax are worked out on the income tax after child allowances (§ 3(2) SolZG, § 51a(2) EStG), which this calculator does not apply, so with children they may come out lower.
• Church tax is taken at 8% or 9% of the income tax. Most churches cap it at 2,75% to 4% of the taxable income, depending on the federal state, automatically or on application (EKD: Kappung); the calculator does not apply that cap, so with a high income the church tax may come out lower.
• Income under the progression clause (Progressionsvorbehalt, § 32b EStG), such as unemployment benefit (Arbeitslosengeld), raises the rate on the rest of your income and is not included; neither is the flat tax on capital income.
• Social insurance contributions and the effect of a severance on unemployment benefit are not part of the calculation.
• The same formula applies to other extraordinary income in § 34(2), such as pay for work that spans more than twelve months and at least two tax years; the reduced 56% rate of § 34(3) for sales of a business is not covered.
• The calculator has the § 32a tariff and the surcharge thresholds of the tax years it offers (Federal Law Gazette) and names the year each result is for. An estimate, not tax advice: your tax assessment decides.

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