German Severance Tax Calculator 2026

What does this calculator estimate?

An Abfindung is compensation that may be paid when employment ends. This calculator estimates the tax attributable to that payment and compares the one-fifth rule with taxation without that relief. It does not determine whether you are entitled to severance or how much you should receive.

Section 34 EStG addresses this with the Fünftelregelung (the "one-fifth rule"): rather than taxing the full severance at once, the law computes the tax as if one-fifth of it were added to your income, works out the resulting increase in tax, and multiplies that increase by five. Because the German tariff is progressive, spreading the calculation this way, without literally spreading the payment over five years, usually results in meaningfully less tax than taxing the whole amount together with your regular salary in one go. This calculator runs that exact formula alongside the plain "taxed together" comparison, using the same income tax engine that powers this site's main salary calculator, so both figures come from one consistent source rather than two different approximations.

It also helps to be clear on terminology, since English and German employment vocabulary do not map neatly onto each other. An Aufhebungsvertrag (mutual termination agreement) ends the employment relationship by mutual consent and often includes a severance as part of the deal; a Kündigung (dismissal) is a unilateral termination by the employer, which may or may not come with a severance offer depending on which of the sources in the next section applies. Neither term describes the tax treatment itself: whether the Fünftelregelung applies turns on how the payment itself is structured and whether it represents a genuine concentration of income, not on which document ended the job.

When are you entitled to severance pay in Germany?

Losing a job does not automatically create a right to severance. A payment may arise from a specific statutory route, a social plan, a court settlement or an agreement with the employer. This calculator starts with a severance amount; it does not assess your employment-law entitlement.

Section 1a of the Kündigungsschutzgesetz (KSchG) lets an employer offer severance in exchange for the employee not challenging an operationally-motivated dismissal in court; under that specific route, the statutory amount is 0.5 monthly earnings per year of service, though that is not a universal formula for every negotiated severance. A Sozialplan is a works-council agreement covering a larger restructuring or plant closure, setting out standard severance terms for everyone affected. Many severances instead arise from a settlement (Vergleich) reached during or to avoid a Kündigungsschutzklage, an unfair-dismissal lawsuit, where the employer pays to end the dispute rather than risk reinstating the employee. And plenty are simply negotiated directly, particularly in a mutually agreed departure. This calculator estimates the tax on a severance you already have, are negotiating, or are being offered; it has no way to tell you whether you are entitled to one at all, or how large it should be.

The one-fifth rule since 2025: payroll versus tax assessment

Until the end of 2024, an employer could apply the Fünftelregelung directly during Lohnsteuerabzug, the payroll withholding process, so the reduced tax already showed up in the net amount paid out. The Wachstumschancengesetz (Growth Opportunities Act), passed 27 March 2024, removed that option specifically to simplify payroll processing for employers. Since 1 January 2025, an employer withholds tax on the full severance amount at the standard rate, with no five-year averaging applied at all.

Eligibility for the relief is considered in the income-tax assessment. Report the severance and the other relevant information fully in your tax return. Any refund depends on the assessed annual tax compared with tax already withheld and advance payments. The calculator's difference between two scenarios is therefore not automatically your refund amount.

How is tax calculated under the one-fifth rule?

In the straightforward case with non-negative remaining taxable income, the additional income tax from one fifth of the qualifying income is calculated and multiplied by five. The relevant starting point is taxable income, not gross salary itself. This calculator currently estimates that starting point using standard assumptions. Negative remaining income and other special cases require additional rules not covered by this short formula.

Solidarity surcharge and church tax may also apply, using their own assessment rules, including the treatment of children. The breakdown below shows the estimated annual tax effect of the severance, not your employer's withholding. Social-insurance treatment and insurance cases outside the model are explained below.

Severance and unemployment benefits: how does tax progression work?

If you also receive a wage-replacement benefit in the same calendar year as the severance, most commonly Arbeitslosengeld, but also Kurzarbeitergeld, Krankengeld or Elterngeld, that benefit is itself tax-free. It is not simply ignored, though: under Section 32b EStG's Progressionsvorbehalt, the tax office adds it to your income purely to work out which tax rate applies, then charges that (higher) rate against your actual taxable income. The replacement income is never taxed directly; it just makes everything else taxed a little more.

Replacement benefits require particular care when combined with the one-fifth rule, especially where remaining taxable income is very low or negative. The calculator currently includes them in a simplified comparison. Use that result only as orientation; a reliable personal calculation requires the actual income, deductions and applicable assessment rules to be checked.

How do joint assessment, children and church tax affect the estimate?

Annual tax depends on income, deductible expenses and the assessment method. Joint assessment includes both spouses' incomes. Payroll tax class does not set a separate final tax rate for severance. This calculator estimates taxable income from the gross salaries entered using standard assumptions. The applicable child allowances and any church tax must also be taken into account.

The relevant child allowances are taken into account when determining the income-tax basis for solidarity surcharge and church tax. They reduce the underlying taxable-income base; they do not increase it. The number of children alone does not always identify the allowances a person is entitled to. Church tax, where it applies, is a flat percentage of income tax rather than its own bracket structure. This model uses a single 8% or 9% rate and does not fully cover special church-tax situations:

Estimated net severance is not the same as your payout

The two net amounts show gross severance less the estimated annual tax attributable to it in each scenario. The tax saving is the difference between those scenarios. Its percentage is measured against gross severance, not as a percentage reduction in your total annual tax. The effective rate includes the modelled income tax and any solidarity surcharge and church tax.

The chart and tables use the same calculated figures. They are not a payslip: your employer may initially withhold a different amount, and the final annual assessment may include other income and deductions. The display therefore does not determine an exact payout or refund.

Which records do you need for your tax return?

For the income-tax assessment, keep records of the payment amount, calendar year and tax already withheld. Also retain evidence of your other income and deductions.

• Your severance agreement (Abfindungsvereinbarung) or the court settlement, showing the gross amount and the calendar year it was paid in
• Your final Lohnsteuerbescheinigung for the year, showing how much tax your employer already withheld on the severance under the post-2025 standard-rate rules
• Any Arbeitslosengeld, Krankengeld or similar replacement-income notice (Bescheid) for the same calendar year, needed for the Progressionsvorbehalt calculation
• Wage-tax certificates and salary records from every employer for the calendar year of payment. Use a reasonable current forecast for wages not yet received; a previous year's certificate does not establish the current year's total.