Severance Tax Calculator Germany 2026
German severance payments are taxed at a reduced rate: the "one-fifth rule" spreads the progression across five notional years. See the tax, your net severance and the saving.
| Income tax on your income without severance | €8,835 |
|---|---|
| Total tax with the one-fifth rule | €26,395 |
| Total tax without the one-fifth rule | €28,764 |
| Saving from the one-fifth rule | €2,369 |
- Severance payments are free of social contributions, only income tax applies.
- Solidarity surcharge and church tax excluded; both can raise the tax slightly.
- Since 2025 employers no longer apply the one-fifth rule in payroll, you claim the benefit through your tax return.
How the one-fifth rule works
Instead of taxing the whole severance at once, the extra tax on one fifth is computed and multiplied by five: tax = 5 × (tax(income + severance/5) minus tax(income)). The lower your other income in the severance year, the bigger the benefit, which is why shifting the payout into a year of unemployment or a sabbatical often saves thousands. Severance is free of social contributions, and since 2025 the benefit is claimed through the tax return rather than payroll.
Frequently asked questions
How is severance pay taxed in Germany?
Severance pay (Abfindung) benefits from the so-called fifth rule (Fuenftelregelung): one-fifth of the severance is added to your regular income to calculate the extra tax, which is then multiplied by five. This reduces the effective tax rate.
Is there a right to severance pay in Germany?
There is no general statutory right to severance. Severance is agreed in a settlement or collective agreement. However, the German Protection Against Dismissal Act (KSchG) makes dismissals harder to enforce without compensation.
Does severance affect unemployment benefit entitlement?
A severance payment can affect the timing of unemployment benefit (Arbeitslosengeld) if it was paid in lieu of notice. The employment agency (Agentur fuer Arbeit) applies a blocking period in such cases.