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

Ending an employment relationship is often accompanied by a severance payment, especially if the employer terminates the contract. This severance payment may be tax-advantaged through the so-called one-fifth rule. But what applies if you resign yourself or if a termination agreement is initiated by you?

What is the one-fifth rule?

The one-fifth rule (§ 34 EStG) is a tax benefit for extraordinary income, which includes severance payments (§ 24 No. 1a EStG). It ensures that this income is taxed at a reduced rate to avoid excessive tax burdens due to the lump sum payment.

Conditions for the tax benefit

For the one-fifth rule to be applied, the severance payment must be related to an extraordinary event – typically termination by the employer or an amicable solution under pressure or conflict.

No tax benefit for voluntary resignation

Important: If you resign without external pressure or without prompting from the employer, the tax benefit will not be granted.

This applies in particular if you resign of your own accord without any conflict or financial hardship.

Exception: Termination agreement in a conflict situation

However, the Münster Finance Court has ruled that a tax benefit is also possible if the employee initiates the termination agreement themselves but acts under pressure:

In the case decided, the employee was in conflict with the employer over their reclassification.
They proposed the termination agreement themselves but acted to avoid further disputes.
The court saw this as a sufficient conflict situation to justify the application of the one-fifth rule.
(FG Münster, 17.03.2017, Az. 1 K 3037/14 E, confirmed by BFH, judgment of 13.03.2018, IX R 16/17, BStBl 2018 II p. 709)

BFH confirms: No actual pressure required for amicable solution

The Federal Finance Court (BFH) clarified: If the employer and employee amicably terminate the employment relationship and a severance payment is made, it is not absolutely necessary for the employee to have been under recognisable pressure. The amicable solution itself is sufficient for the tax benefit.

When does the tax benefit lapse despite severance pay?

The BFH ruled in another judgment (06.12.2021, IX R 10/21):

If a severance payment is not paid in one year but spread over several years, the one-fifth rule lapses.
This also applies if there are partial payments (e.g. severance pay and starting bonus) made for the same event.

Special case: Sprint bonus

A so-called sprint bonus, paid when an employee voluntarily leaves early, can be considered compensation and subject to the one-fifth rule.
(Hessian FG, court order of 31.05.2021, Az. 10 K 1597/20)

Conclusion

Even on your own initiative, a severance payment can be tax-advantaged – the decisive factor is the actual conflict situation or an amicable solution between the parties. However, it is important that the payment is made in one year and recognised as compensation.