Severance Pay (Abfindung) Tax Return: Getting Your Money Back

The short answer: without a tax return, your money stays with the tax office

When your severance pay is paid out, your employer withholds full income tax on it. The tax reduction from the one-fifth rule (Fünftelregelung) only comes back once you receive your tax assessment, and you only get that if you file an income tax return for the payout year. With a severance payment in the five-figure range, this quickly adds up to four-figure amounts.

This page focuses only on the step many people underestimate: the tax return itself. Which document shows what, which line does the severance pay belong on, when’s the deadline, and what do you do if the tax office won’t play along? For how severance pay is taxed in general, see Taxing Severance Pay. We explain the exact calculation logic and the requirements for the reduction under One-Fifth Rule.

Important: Team Abfindung is not a tax advisor. The following information is general. For your specific tax return, a tax advisor or income tax assistance association is the right place to turn.

What changed in 2025

Until the end of 2024, employers could apply the one-fifth rule directly during payroll tax deduction. Since 1 January 2025, the Growth Opportunities Act (Wachstumschancengesetz) has put a stop to that. The rule on income tax for other payments (§ 39b EStG) no longer refers to § 34(1) EStG. Your severance pay is now treated at payout like any other one-off payment, such as a large bonus.

This doesn’t change the tax ultimately owed. Only the timing shifts:

• At payout: full income tax plus, where applicable, solidarity surcharge and church tax.
• With the tax assessment: the tax office recalculates using the one-fifth rule and refunds the difference, provided the requirements are met.

For you, this means two things. First, less lands in your account initially than a net calculator using the one-fifth rule would suggest. Second, you have to take action yourself. Anyone who doesn’t file a tax return gives up the reduction entirely.

Don’t have a figure yet? Use the severance calculator first to estimate what’s realistic in your case.

Mandatory or voluntary? Here’s how to find out

Previously, applying the one-fifth rule during payroll tax deduction itself triggered a filing obligation. The reform did away with that: § 46(2) no. 5 EStG now only covers a special case under § 39c(3) EStG. So the severance pay alone doesn’t force you to file. However, there are typical reasons around a job loss that do trigger an obligation:

The first point affects many people: if you receive unemployment benefit after leaving, you’ll quickly exceed the €410 threshold. The unemployment benefit itself is tax-free, but under the progression clause in § 32b EStG it raises the tax rate on your remaining income, including the severance pay. The same applies to the transfer short-time allowance in a transfer company (Transfergesellschaft).

If you’re not obliged to file, you simply apply by submitting the return. This costs nothing to do and, with a severance payment, is practically always worthwhile.

Deadlines for the 2025 and 2026 severance years

The deadline depends on whether you’re obliged to file and whether a tax advisor or income tax assistance association helps you. The mandatory deadline is set out in § 149 AO. If the deadline falls on a weekend, the next working day applies (§ 108(3) AO). With an advisor, the tax office can, in individual cases, also demand the return earlier (§ 149(4) AO).

The voluntary return is bound by the four-year assessment period (§ 169 AO), which starts at the end of the payout year (§ 170 AO). If you received your severance pay in 2025 and were obliged to file without an advisor, you’ve already missed the deadline. In that case: catch up now. A late filing surcharge is possible (§ 152 AO), but if the return results in a refund, the tax office doesn’t have to impose one.

Want to know roughly how big your refund will be? Run your severance pay through our gross-to-net calculator.

Documents you’ll need

Your employer sends your payslip certificate (Lohnsteuerbescheinigung) to the tax office by the end of February of the following year (§ 93c AO) and gives you a printout (§ 41b EStG). Also have these documents ready:

• Payslip certificate: box 3 (gross pay, including the severance pay), box 4 (income tax withheld), and box 10 (severance pay shown separately).
• Termination agreement (Aufhebungsvertrag), settlement agreement, or court settlement: proof that the payment is compensation for the loss of your job (§ 24 no. 1 EStG) rather than back pay.
• Certificate of wage replacement benefits: for example, the Federal Employment Agency’s certificate of unemployment benefit paid.
• Receipts for costs related to the severance pay: for example, invoices for legal representation during negotiations.
• Payslip certificates from any other employers that year, if you already have a new job.

What box 10 on the payslip certificate means

On the 2025 payslip certificate, the field is called “income for several calendar years, compensation payments, e.g. severance pay (included in 3, excluding 9)”. So the amount is already part of gross pay under box 3, but it’s shown separately here so the tax office can apply the reduced rate to it. Since 2025, an entry here no longer means the reduction has already been applied. It just marks what the reduction should be applied to in your tax return.

If box 10 is empty

If your employer only reported the severance pay under box 3, the tax office’s data won’t show any compensation. Ask your employer for a corrected certificate. If that doesn’t happen, enter the severance pay yourself and attach the termination agreement or settlement as proof. While you’re at it, check that only the severance pay actually sits under box 10: holiday pay compensation (Urlaubsabgeltung) or back pay count as normal wages, not compensation.

Where to enter your severance pay: step by step

Severance pay belongs in Annex N, not in a form for other income. The line numbers below apply to Annex N 2025. They sometimes shift from year to year, so we also give you the field label to search for.

1) Enter your gross pay

Transfer box 3 of your payslip certificate to line 5. Do not subtract the severance pay there. The description for line 17 explicitly states that the amount is already included in the gross pay reported on line 5.

2) Mark the severance pay as compensation

Enter the amount from box 10 on line 17. Only this entry tells the tax office to check the one-fifth rule. If you use the pre-filled tax return via ELSTER, check whether the figure has actually been carried over.

3) List costs related to the severance pay separately

Costs directly related to the severance pay count as income-related expenses under § 9 EStG. They belong in the special-cases block and must not also appear under general income-related expenses.

4) Don’t forget wage replacement benefits

Unemployment benefit or transfer short-time allowance is reported electronically by the paying agency. Declare it anyway and check the figures match. If it’s missing, the tax office usually adds it later, often resulting in a demand for additional payment.

5) Attach proof

Upload the termination agreement or settlement as proof, or keep it ready in case the tax office asks. It shows that the payment was made because the employment relationship ended.

Two worked examples: how much comes back

Both examples are calculated with Team Abfindung’s tax calculator: 2026 tax rates under § 32a EStG, single, no church tax, solidarity surcharge included. Taxable income is derived from gross pay in a simplified way (standard allowances, pension contributions flat at 20%). The “full taxation” column only shows an approximation of the employer’s payroll tax deduction. The actual deduction on the one-off payment may differ.

Example 1: €40,000 severance pay with €60,000 annual gross pay

The severance pay is paid out in 2026, and your salary runs the whole year. You file the return for 2026 in 2027.

The difference of around €1,928 (€1,723 income tax plus €205.04 solidarity surcharge) only comes back via your 2026 tax return.

Example 2: leaving on 30 June, same severance pay

The employment relationship ends on 30 June 2026, with €30,000 in pay up to that point, plus €40,000 severance pay. Together that’s €70,000, more than the €60,000 you’d have earned had you kept working. This satisfies the bunching requirement (Zusammenballung) needed for the one-fifth rule.

Here it’s around €2,211. The lower your remaining income in the severance year, the stronger the one-fifth rule works. Often there’s an additional refund from your regular pay too, because monthly income tax is calculated as if you earned that amount all year. If you receive unemployment benefit from July onwards, the progression clause raises the tax rate again, which we’ve deliberately left out of this calculation.

You’ll find net pay tables for other amounts under Severance Pay of €50,000.

What does the calculation look like with your own figures? Calculate your severance pay gross and net with a visible calculation path.

Refund or additional payment: what it depends on

In a straightforward case, one employer, tax class I, no other income, the return leads to a refund. But in these constellations, it can also turn into additional payment:

• Unemployment benefit after leaving: it’s factored in when determining your tax rate, which also affects the severance pay.
• Tax class V, VI, or IV with factor: the payroll tax deduction here rarely matches the combined annual tax exactly.
• Changing jobs within the same year: if your employer didn’t know about pay from your earlier job, the income tax on the severance pay was too low.
• No bunching: if the tax office rejects the one-fifth rule, full taxation applies, and other factors can then lead to additional payment.

A severance payment can also touch on your path into retirement in the payout year, for example if you want to use it to offset pension deductions. Work through such arrangements with a tax advisor beforehand.

If the tax office refuses the one-fifth rule

Check your tax assessment as soon as it arrives. The explanatory notes state whether the severance pay was taxed at the reduced rate. The most common reasons for refusal:

You have one month to lodge an objection (Einspruch) against the assessment (§ 355 AO). An assessment sent by post is deemed received on the fourth day after posting (§ 122(2) AO); one made available for retrieval via ELSTER is likewise deemed received on the fourth day after it’s made available (§ 122a(4) AO). You can lodge the objection in writing or via ELSTER, and it costs nothing. If only one piece of proof is missing, submitting it afterwards is often enough. If it’s about bunching or whether the payment is compensation at all, you should involve a tax advisor or income tax assistance association.

What you can steer before you even sign

Many problems in the tax return arise months earlier, in the termination agreement or the settlement. Three points help decide whether the return later goes smoothly:

1. One payment, one year. Agree on the severance pay as a single lump sum where possible. Instalments across the turn of the year jeopardise the bunching requirement.
2. Choose the payout timing deliberately. What matters is the year the money reaches your account. A year with lower income can reduce the tax.
3. Name it clearly. The contract should describe the payment as severance for the loss of your job, and keep it separate from pay, bonus, and holiday pay compensation.

You can read what the severance clause in the contract should look like under Termination Agreement and Severance Pay. A termination agreement can also have consequences for unemployment benefit, more on that under Benefit Suspension Period for Unemployment Benefit. For how to push the amount upward yourself, see Severance Pay: Amount and Negotiating Severance Pay. In a social plan (Sozialplan), the amount and timing are often fixed in advance, see Social Plan Severance Pay.

Already have an offer on the table? Get your termination agreement checked before you sign.

How can we help you?

A tax return can only reduce what was negotiated beforehand. So before it comes down to entering figures, it’s about the severance pay itself: is the offer fair, is the payout timing and wording right, and what’s realistically achievable with an unfair dismissal claim (Kündigungsschutzklage)? That’s exactly what we look at together with lawyers specialising in employment law. For the tax return itself, a tax advisor or income tax assistance association is your point of contact.

We carry the risk: purely success-based, no upfront cost. Start with a first assessment using our severance calculator, it only takes 2 minutes.