SteuerGo FAQs

(2022) Voluntary resignation: Is the severance payment subject to the one-fifth rule?

The early termination of employment by the employer is usually painful for the employee concerned. To ensure an amicable separation, the employee is often given a golden handshake. Compensation is provided for the loss of employment, which is also taken into account with tax benefits. But does this also apply if you resign yourself?

The severance payment is compensation within the meaning of § 24 No. 1a EStG and is therefore considered "extraordinary income". There is a tax benefit for this extraordinary income: the reduced taxation according to the so-called one-fifth rule (§ 34 EStG). However, this requires, among other things, that it is a "special event". This is assumed if the termination or amendment of the contract is initiated by the employer or if the employee acted under significant legal, economic or factual pressure or at least in a conflict situation to avoid disputes when concluding a termination agreement.

Note: The tax benefit is not granted if you initiated the termination of the contract yourself, i.e. resigned without any prompting from the employer.

Currently, however, the Münster Finance Court has ruled in a case that a severance payment is also tax-privileged under the one-fifth rule in accordance with § 34 para. 2 EStG if the employee concluded the termination agreement on their own initiative. In this case, the employee was under the significant factual pressure required by the BFH case law when concluding the termination agreement, as they acted in a conflict situation to avoid disputes about the continuation of the employment relationship and the promotion they sought (FG Münster of 17.3.2017, 1 K 3037/14 E, Revision IX R 16/17).

According to the finance judges, it is harmless for the tax benefit that the employee approached the employer and demanded the conclusion of a termination agreement with severance payment. For the assumption of a conflict situation, it is sufficient that there was an opposing interest between the employer and the employee, both parties contributed to the conflict, and the parties resolved the conflict by consensus.

These conditions were met because both parties resolved their conflicts of interest regarding early departure from service and promotion through the termination agreement.

Currently, the BFH has shared this view and dismissed the tax authorities' appeal. It follows that if an employer pays an employee a severance payment as part of the (amicable) termination of employment, factual findings on whether the employee was under actual pressure are generally unnecessary (BFH ruling of 13.03.2018, IX R 16/17, BStBl 2018 II p. 709).