German Severance & Funftelregelung Calculator
Determine your net severance payout (Netto-Abfindung) and compute precise progressive income tax savings using the statutory one-fifth rule (Funftelregelung gem. § 34 EStG).
Severance & Annual Earnings
Regular Annual Tax Base
Salary earned prior to departure or replacement income in the same calendar year.
Net Severance (Mit Funftelregelung)
Tax savings from § 34 EStG discount: € 0.00
Why Severance is Social Security Exempt
Under German social law (BSG jurisprudence), true severance paid for the loss of a job (Entlassungsabfindung) is not deemed remuneration for work performed and is therefore completely free of Renten-, Kranken-, Pflege-, and Arbeitslosenversicherung deductions!
Criteria for § 34 EStG Application
- Ballung von Einkunften: Payout must be concentrated in a single calendar year, exceeding your normal annual salary.
- Annual Tax Declaration: Even if the employer did not apply the Funftelregelung directly on the pay slip, you can claim the refund on your annual tax filing (Anlage N).
Severance Tax Relief Comparison: § 34 EStG vs Standard Taxation
| Tax Treatment Method | Calculation Mechanism | Marginal Bracket Impact | Social Security Levies | Filing Requirement |
|---|---|---|---|---|
| Funftelregelung (§ 34 EStG) | Tax differential on 1/5th multiplied by 5 | Substantial bracket smoothing | 0% Exempt | Payroll or Anlage N filing |
| Regular Progressive Taxation | Lump sum added 100% to regular income | Pushed immediately to 42%–45% top rate | 0% Exempt | Automatic payroll withholding |
| Year-Shift (Verschiebung) | Payout deferred to January of subsequent year | Maximum savings if base income is lower | 0% Exempt | Severance agreement clause |
How the German One-Fifth Rule (Funftelregelung § 34 EStG) Works
Because Germany has a steep progressive income tax bracket system (14% up to 42% or 45%), receiving a large lump-sum severance would ordinarily push all the money into the highest tax bracket, annihilating nearly half the payout. The Funftelregelung acts artificial multi-year tax smoothing tool:
Step 1: Baseline Tax
Calculate income tax on your regular taxable income for the year without the severance payout.
Step 2: Add One-Fifth
Add exactly one-fifth (20%) of the severance to your regular taxable income, and recalculate income tax.
Step 3: Multiply by 5
Subtract the Step 1 tax from the Step 2 tax to find the tax on 1/5th. Multiply that difference by 5. That total is your final tax on the severance.
Frequently Asked Questions (FAQ)
What is the German Funftelregelung (§ 34 EStG)?
The Funftelregelung (one-fifth rule) is a statutory tax-mitigation formula under Section 34 of the German Income Tax Act (EStG). It treats a lump-sum severance payout it were received across five years, mitigating progressive income tax bracket creep and preventing the severance from being taxed at the top marginal rate.
Are social security contributions deducted from German severance pay?
No. Under established jurisprudence of the Federal Social Court (BSG), genuine severance pay awarded for the termination of an employment contract (Entlassungsabfindung) is not considered wages for work performed and is completely exempt from pension, health, nursing care, and unemployment insurance.
Is there an automatic statutory entitlement to severance pay in Germany?
In German labor law, there is generally no automatic statutory right to severance unless explicitly provided in a collective bargaining agreement (Tarifvertrag), works council social plan (Sozialplan), or offered by the employer under Section 1a of the Protection Against Dismissal Act (KSchG) in exchange for waiving an unfair dismissal claim.
What is the standard severance formula under KSchG § 1a?
The statutory benchmark under Section 1a KSchG is 0.5 monthly gross earnings for each full year of employment tenure. Fractions of a year exceeding six months are rounded up to a full year.
Can severance payment be shifted to the following calendar year?
Yes. If an employee anticipates significantly lower income in the following tax year (e.g. sabbaticals, parental leave, or job hunting), contractually agreeing to receive the severance payout in January rather than December can substantially reduce the effective tax rate under § 34 EStG.
Engr. Muhammad Shahzad
Verified Compliance AuthorPrincipal Civil & Systems Software Engineer specializing in European labor taxation algorithms, German § 34 EStG Funftelregelung models, and social security statutory exemptions.
📊 BMF Lohnsteuer, Sozialversicherungsbeiträge und Solidaritätszuschlag Matrix
| Statutory Component / Legal Deduction Item | Calculated Amount (EUR) |
|---|---|
| Primary Net / Statutory Payable Amount | 0,00 € |
Engr. Muhammad Shahzad
Principal Financial Systems Architect & German BMF Fiscal Architecture & Social Insurance Specialist
Lead software and systems architect specializing in high-performance browser computing, algorithmic validation, financial models, and zero-telemetry client-side privacy architecture.