Instead of giving notice, employers often offer employees one Termination agreement to. This allows you to avoid the often long notice periods. The longer a worker has been employed, the longer it would be before they have to leave.

Such a contract is usually associated with compensation for dismissal. Colloquially we speak of one Severance pay. The amount is a matter of negotiation. In practice, severance payments are usually between half and a full month’s salary per year of service. Your gross salary is decisive for the amount of the severance payment. This includes parental leave and sick leave. From six months onwards, the beginning of the working year is fully valid.

Severance payments add up quickly. If you have been working for the same company for ten years for 50,000 euros gross per year, your severance payment would usually be at least 20,833 euros. Employers usually pay out the sum as a lump sum. In rare cases, you can also agree on installment payments that last several years. Experts usually advise against this. As an employee, you rarely benefit from this.

How to calculate tax

No matter how the severance payment is paid, you must receive it tax. There are two pieces of good news: Firstly, no social security contributions are due on severance pay. There may be an exception if you have voluntary statutory health insurance. Employees aged 50 and over are also allowed to voluntarily pay part of their severance payment into the statutory pension insurance. The prerequisite is that you want to use it to compensate for pension reductions in the event of an early retirement. However, only income tax, church tax and solidarity contributions are mandatory.

The second good news: You benefit from a special tax rule. The federal government decided on the fifth rule in 2001. It works like this: The tax office fictitiously adds a fifth of the severance payment amount to your taxable income. It calculates the new tax burden for this sum. It then takes the difference in the tax burden of your original salary and multiplies it fivefold. This results in the tax deduction for your severance payment.

The advantage is that you avoid the progressive increase in the income tax rate. Important: Since 2025, employers have generally no longer taken the fifth rule into account directly when making payments. You usually only get the tax advantage back through your tax return.

You can see how much net you have left in the table. It compares different incomes and severance pay levels. A calculation example: With an annual gross income of 50,000 euros, the tax burden for a childless single in tax class I is around 7,100 euros. With a severance payment of 10,000 euros, the tax office would now add a fifth of the sum – i.e. 2,000 euros – to the taxable income. You would now have to pay tax on 39,784 euros instead of 37,784 euros. The additional income and church tax is around 640 euros. Multiplied fivefold, this results in a tax burden of 3,200 euros for the severance payment. So out of 10,000 euros, you have around 6,800 euros left.

You can often get half of the church tax paid on the severance payment back by applying to the respective regional church. The repayment is voluntary. Please note, however, that this can lead to additional tax payments, as church tax is deductible as a special expense. If the employer pays the severance payment in installments over several years, you usually cannot apply the fifth rule. The tax office then treats and taxes each installment in the respective year as normal income.