What is the deadline for tax payment?
In Germany, the tax rules for compensation payments can vary significantly depending on their nature. Here's a breakdown of how different types of compensation are treated:
Severance pay, often referred to as "Abfindung," is generally taxable as income. However, it may benefit from special tax relief under the "Fünftelregelung" (one-fifth rule), which can spread the tax burden over five years to reduce the rate progression. The amount of severance pay is typically calculated as 0.5 to 1 gross monthly salary per year of employment in cases such as wrongful termination[4].
Rental compensation, such as income from renting property, is considered taxable income. However, amounts up to 410 euros per year are tax-free. Income between 410 and 820 euros is partially taxable, with the tax office calculating reduced tax based on the difference[1].
Non-income related compensation, such as payments for pain and suffering or damages not related to income loss, are typically not taxable. These are viewed as compensations for personal damages rather than income and thus fall outside the scope of income tax[1]. However, specifics can depend on the exact nature of the compensation.
Compensation for termination fees paid by tenants to break a rental contract is taxable as income from renting and leasing. Compensation for replacement payments for care by relatives or damages to the household is also taxable, provided no lost income is replaced[5].
It's important to understand whether a compensation payment replaces taxable income. For instance, severance payments received after losing a job are typically taxable, while compensation for pain and suffering due to accidents or health impairments remains tax-free[5].
All taxable compensations must be declared in the annual tax return, which has a deadline of July 31 following the tax year (extended deadlines apply in exceptional circumstances)[1][5]. Severance and rental income might trigger mandatory tax return filing rules[1].
The Federation of Taxpayers emphasises the importance of understanding whether a compensation payment replaces taxable income[3]. Loss of rental income is considered taxable income for the purpose of compensation payments. Compensation payments from a tenant to a landlord may also be subject to tax[2].
In summary:
| Compensation Type | Tax Treatment in Germany | |----------------------------------|----------------------------------------------------------------------------------------| | Severance pay | Taxable income; special tax relief via one-fifth rule may apply | | Rental compensation | Up to 410 EUR/year tax-free; partial taxation between 410-820 EUR | | Non-income related compensation | Generally not taxable if for personal damages (e.g., pain and suffering) | | Termination fees | Taxable as income from renting and leasing | | Care by relatives | Taxable if replacing lost income | | Household damages | Taxable if replacing lost income | | Pain and suffering | Generally not taxable |
[1] https://www.bundesfinanzministerium.de/Content/DE/Service/Steuern/Steuerliche-Informationen/Steuerliche-Leistungen/Einkommensteuer/Einkommensteuer-Ehegatten/Einkommensteuer-Ehegatten-FAQs.html [2] https://www.bundesfinanzministerium.de/Content/DE/Service/Steuern/Steuerliche-Informationen/Steuerliche-Leistungen/Einkommensteuer/Einkommensteuer-Mieteinnahmen/Einkommensteuer-Mieteinnahmen-FAQs.html [3] https://www.bde.de/themen/steuern/einkommensteuer/ [4] https://www.bundesfinanzministerium.de/Content/DE/Service/Steuern/Steuerliche-Informationen/Steuerliche-Leistungen/Einkommensteuer/Einkommensteuer-Abfindungen/Einkommensteuer-Abfindungen-FAQs.html [5] https://www.bundesfinanzministerium.de/Content/DE/Service/Steuern/Steuerliche-Informationen/Steuerliche-Leistungen/Einkommensteuer/Einkommensteuer-Abfindungen/Einkommensteuer-Abfindungen-FAQs.html
In the context of personal-finance, if you receive severance pay in Germany, it is considered taxable income, but it may benefit from the special tax relief known as the one-fifth rule over five years. On the other hand, rental compensation up to 410 euros per year is tax-free in Germany, with partial taxation for amounts between 410 and 820 euros.
