Calculate severance pay – how much money you lose to tax?

How to calculate a severance payment? You can find a possible formula in this guide.

Do employees keep their Letter of dismissal issued by the employer in hand, often arises a chaos in the head: How should I continue to pay off the installments for the home loan? How fast can I find a new job? The reassurance comes with the thought: "Although my regular income ceased, but I am entitled to a severance payment in any case."

But is this really so? Under which circumstances do you receive a severance payment?? Is there a severance formula according to which you can calculate severance pay? How much does the legislator retain from the severance pay paid by taxation? We clarify these and other questions in the following guidebook.

Use the free severance pay calculator!

Compact knowledge: Calculate severance pay

There is no legal entitlement to the payment of severance pay. Information on when you may nevertheless be entitled to a severance payment can be found here.

You can calculate the amount of severance pay using this formula: Amount of severance pay = 0.5 x gross monthly salary x length of service in years. Alternatively, you can use this severance pay calculator.

A severance payment is taxed differently than the regular salary. In this case, the so-called "quintuple regulation" comes into play. How it works, you can learn here.

When do you get a severance pay?

Contrary to popular belief in the case of termination quasi always have a claim to severance pay applies: Only under very narrowly defined conditions are the chances good to receive a one-time payment as a concession from the employer in case of job loss. You often look for a legal claim in vain.

How to calculate severance pay?

Severance pay calculator: the one-fifth rule is set out in the EStG and reduces your tax burden.

To find out roughly how much you can expect to receive when an employment relationship is terminated, there is a very simple formula different calculation methods, which we want to present in the further course.

Usually however, the following parameters play a role in calculating severance pay:

  1. Length of service
  2. Consequences of the job loss for the employee
  3. Legality of the dismissal
  4. Negotiating skills of the contracting parties

If you want to calculate severance pay, experts usually recommend an Pi-mal-thumb formula, the following way:

Ergo, this would mean in a fictitious example: Martina Mustermann is terminated by her employer after 8 years of service. Your regular gross salary was 3.000 euros. If we calculate the severance pay, it would theoretically 12.000 Euro received.

In some cases, the calculation of the severance pay also includes the Age of the dismissed person is taken into account. In this case the factor of 0.5 increases, if necessary, to 0.75 or even 1, which increases the result.

The severance payment calculation in the event of termination is made in accordance with § 10 Dismissal Protection Act different. The legislator states here that a severance pay amounts to a maximum of 12 months’ earnings. When calculating severance pay according to this principle, explicit reference is made to the age of the person being dismissed. To this it is said:

If the employee has reached the age of fifty and the employment relationship has existed for at least fifteen years, an amount up to fifteen months’ earnings is to be determined; if the employee has reached the age of fifty-five and the employment relationship has existed for at least twenty years, an amount up to eighteen months’ earnings is to be determined. (§ 10 KSchG)

What remains of the severance pay? The final calculation

Calculating severance pay is not always easy, as many things play into it.

The legislator collects money from all citizens to pay for certain government expenditures. For example, the following are levied Value added tax (taxes that are based on the value added) and also wage tax (advance payment of income tax, which the employer pays to the tax office and u. a. ensures that at the end of the month net less comes out than gross agreed in the employment contract.

The question is now: Must also deductions are accepted for the severance pay? Yes, in the full amount you can not keep the calculated severance pay. The good news is that pension, health, unemployment and long-term care insurance do not require a share from it. The situation is different with regard to tax, in particular the Wage tax from.

This is levied on severance payments. If you pay your Calculating severance pay, So you have to reckon with there is not quite so much money left over in the end.

What has it with the Funftelregelung on itself?

The legislator takes into account the fact that severance pay is amounts paid once are included in the income, but considered as extraordinary income will. This is treated differently by the tax authorities, which is why the deductions for severance pay are not too high.

This is due to the so-called Quintuple scheme. The severance pay will be paid after the tax year specified in § 34 Income Tax Act (EStG) dealt with as follows: From the name it can be inferred that one fifth of the awarded severance pay be credited against the annual income will. This amount is the basis for the tax calculation. The The result is then compared with the tax burden that would result from the regular annual income without severance pay. The emerging Difference is now multiplied by five. This is the amount of money that a terminated employee to the tax office as income tax from this lump sum payment must. The regular tax burden by the normal income from the year remains unaffected by this.

Calculation of severance pay using a calculator

The one-fifth rule: a calculator can show you how much tax you can save.

The calculation is often not easy, especially when looking at the legal text, which is also due to the choice of words. But do not worry, you do not have to bury your head in the sand, but can refer to severance pay calculator in case of difficulties. Online there are a lot of these available and make it quite easy to calculate the deductions.

In order to reach your goal quickly, you should Before using the severance calculator, have the following information ready when you are laid off:

  • Which tax year are we talking about?
  • How much is your gross annual salary?
  • What was the extent of the severance pay?
  • Benefit from wage or salary increases. Compensation benefits?
  • If you are a church member and pay church tax accordingly?

Based on this information, you can use the severance pay calculator to find out the tax, how much money you have left net of gross.

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