Severance Pay Taxation: The Fifth Rule (Fünftelregelung) 2025
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The fifth rule spreads severance over 5 years for tax purposes – potential tax savings up to 30%. When does it apply?
How the Fünftelregelung Works Step by Step
The Fünftelregelung (fifth rule) under § 34 EStG is the most important tax privilege for severance payments in Germany. It softens the effect of tax progression by spreading the severance amount over five years for calculation purposes. Important: From 2025 onwards, the Fünftelregelung is no longer automatically applied by your employer during payroll – you must claim it yourself in your tax return (Steuererklärung).
Calculation in 4 Steps
- Step 1: Calculate the income tax on your regular annual income (without the severance).
- Step 2: Add one fifth of the severance to your annual income and calculate the tax on that total.
- Step 3: Find the difference between Step 2 and Step 1. This is the tax on one fifth of the severance.
- Step 4: Multiply that difference by 5. This is the total tax on your severance payment.
Tax Comparison: 50,000 € Severance at Different Annual Incomes
The table below shows how much tax is due on a 50,000 € severance – with and without the Fünftelregelung (tax class I, no church tax, rounded values):
| Annual Gross Salary | Tax without Fünftelregelung | Tax with Fünftelregelung | Savings |
|---|---|---|---|
| 30,000 € | approx. 13,800 € | approx. 10,200 € | approx. 3,600 € |
| 40,000 € | approx. 16,500 € | approx. 13,400 € | approx. 3,100 € |
| 50,000 € | approx. 19,700 € | approx. 17,000 € | approx. 2,700 € |
| 60,000 € | approx. 23,100 € | approx. 20,800 € | approx. 2,300 € |
As the table shows: the lower your regular income, the greater the benefit of the Fünftelregelung. At 30,000 € annual gross, the savings amount to around 3,600 €.
Severance Payments Are Exempt from Social Security
An often overlooked advantage: genuine severance payments for termination of employment are completely exempt from social security contributions. No health insurance, long-term care, pension, or unemployment insurance contributions are due. However, this only applies if the severance truly compensates for the loss of employment and is not disguised salary.
Optimization Strategies for Your Severance
- Timing of payment: Have the severance paid in a year with the lowest possible income. Ideally, the new year starts without employment and the severance is paid in January, keeping your other annual income minimal.
- Company pension (bAV): Part of the severance can be paid tax-free into a direct insurance or pension fund – up to 4% of the contribution assessment ceiling (2025: approx. 3,624 €). Even more is possible with catch-up contributions.
- Lump-sum requirement (Zusammenballung): The Fünftelregelung only applies if the severance is received in a single tax year and exceeds the lost salary. Installment payments can negate the benefit.
- Increase deductible expenses: Training costs, job application expenses, or outplacement consulting in the year of severance can further reduce your taxable income.
Requirements for the Fünftelregelung
Not every severance payment qualifies automatically. The following conditions must be met:
- The severance must be compensation for lost income (lump-sum concentration of earnings).
- The termination or settlement agreement must have been initiated by the employer.
- The severance must exceed the income lost until year-end.
Sources: § 34 EStG, BMF guidance on the Fünftelregelung, Wage Tax Guidelines 2025.
Calculate your after-tax amount: How much of your severance will you keep after taxes? Calculate it precisely with all tax classes and allowances: Go to Gross-Net Calculator.
Sources & References (2026)
All calculations are based on the official legal provisions for 2026. Despite careful research, no guarantee is given for correctness. This calculator does not replace professional tax advice.