Fifth rule
With the so-called fifth rule , extraordinary income is favored under German tax law ( Section 34 EStG ). A one-off, high income is treated for tax purposes as if the recipient received it evenly over the next five years. This avoids a one-off high tax burden, because due to the tax progression the tax rate would be significantly higher than if it were spread over five years. When calculating the tax, a fifth of the one-time income is added to the taxable income. The difference between this amount and the (normal) tax amount without a one-off income is multiplied by five and gives the tax amount for the entire one-off income.
Applications and investigation
This so-called "collectively favored income" is income that has been generated over several years, but is realized and taxed in a single year, such as B. Capital gains on the sale of a business, redundancy payments and remuneration for multi-year activities, such as benefit funds . Without the benefit, there would be an unusually high tax burden because the tax would rise more sharply due to the tax progression than if it were spread over several years. The aim of the fifth rule is to compensate for this: the extraordinary income is also taxed in full, but only a fifth of it has a progressive effect on the tax to be applied.
Example (income tax table from 2020): An employee has a taxable annual income of 30,000 euros. This would result in a tax of 5,187 euros. The employment relationship ends by termination agreement at the end of the year. A severance payment of 10,000 euros is agreed. Without the one-fifth rule, the offset income of 40,000 euros would result in a tax of 8,452 euros. Due to the fifth rule, only one fifth of the severance payment is used to calculate the tax, i.e. 2,000 euros. The basis for calculating the tax is therefore 32,000 euros, which corresponds to a tax of 5,806 euros. The difference of 5,806 euros and 5,187 euros results in 619 euros. This tax difference is multiplied by five and added to the tax of 5,187 euros. This results in a reduced tax of 8,282 euros. In the example, the tax burden is reduced by 170 euros due to the fifth rule.
If the taxable income contains extraordinary income , the income tax applicable to all extraordinary income in the assessment period is to be determined as follows: It is five times the difference between the income tax for the remaining taxable income without taking extraordinary income into account and the income tax for the remaining taxable income plus one fifth of extraordinary income.
The law results in the following formula: with collective income tax in accordance with §32a EStG on income in the amount of (...) Remaining taxable income without taking into account extraordinary income
Extraordinary income (e.g. severance pay)
If the remaining taxable income is negative and the taxable income is positive, the income tax is five times the income tax applicable to one fifth of the taxable income.
In the case of capital gains, taxpayers over 55 years of age still have the option of choosing a reduced tax rate and a special tax exemption instead of the one-fifth rule . But that only works once in a lifetime.
If the taxable income is so high without extraordinary income that the top tax rate is reached, the fifth rule has no effect. In this case, the “first fifth” is already subject to the top tax rate (45% in Germany), and thus the entire amount of the extraordinary income.
It should be noted that in connection with the fifth rule, regular income can also have a negative impact on net income. Examples 2 and 3 below illustrate this.
Calculation examples
All of the example cases concern an unmarried employee who is subject to pension insurance and has tax class I / 0 or the basic income tax table (2009 income tax rate). Solidarity surcharge and any church tax are not taken into account.
Example 1:
In 2009 the employee receives a severance payment of € 5,000. The taxable income is € 15,000. The taxable income is increased by a fifth of the severance payment (by € 1,000):
| Income tax of € 16,000 | € 1,711 | ||
| Income tax of € 15,000 | € 1,461 | ||
| difference | 250 € | ||
| Wage tax of (€ 250 × 5 =) must be withheld from the severance payment | € 1,250 | ||
| Remains a net settlement of (€ 5,000 - € 1,250 =) | € 3,750 |
Example 2:
The employee receives a severance payment of € 250,000 in 2009. As in example 1, the taxable income is also € 15,000.
The taxable income is increased by a fifth of the severance payment:
| Income tax of € 65,000 | € 19,236 | ||
| Income tax of € 15,000 | € 1,461 | ||
| difference | € 17,775 | ||
| Wage tax of (€ 17,775 × 5 =) must be withheld from the severance payment | € 88,875 | ||
| What remains is a net settlement of (€ 250,000 - € 88,875 =) | € 161,125 |
Example 3:
The employee receives a severance payment of € 250,000 in 2009, but has no other taxable income.
| Income tax of € 50,000 | € 12,950 | ||
| Income tax of € 0 | 0 € | ||
| difference | € 12,950 | ||
| Wage tax of (€ 12,950 × 5 =) must be withheld from the severance payment | € 64,750 | ||
| What remains is a net settlement of (€ 250,000 - € 64,750 =) | € 185,250 |
This means that those who were still working in the year of the dismissal allowance have less after taxes than if they had not worked.
Example 4:
The calculation becomes even more complicated if the employee has also received benefits that are subject to the progression proviso ( Section 32b EStG). According to R 34.2 EStR 2005 (tax calculation taking into account the tariff reduction) Paragraph 1, these services must be taken into account accordingly.
The employee will receive a severance payment of € 250,000 in 2009. The other taxable income is € 10,000. In addition, unemployment benefits of € 5,000 are drawn.
| Income tax of € 10,000 | € 347 | ||
| notional income tax of € 10,000 + € 5,000 | € 1,461 | ||
| fictitious tax rate in% (1,461 of 15,000 €) | 9.74% | ||
| Income tax of € 10,000 at 9.74% | 974 € | ||
| Income tax of € 60,000 | € 17,136 | ||
| notional income tax of € 60,000 + € 5,000 | € 19,236 | ||
| fictitious tax rate in% (19,236 of 65,000 €) | 29.59% | ||
| Income tax of € 60,000 with 29.59% | € 17,756 | ||
| Difference (€ 17,756 - € 974) | € 16,782 | ||
| Wage tax of (€ 16,782 × 5 =) must be withheld from the severance payment | € 83,910 | ||
| Remaining net (€ 265,000 - € 974 - € 83,910 =) | € 180,116 |
Individual evidence
- ↑ Scheffler, Wolfram: Taxation of Companies I. Income, property and transaction taxes. 12th edition Heidelberg u. a .: Hüthig, Jehle, Rehm 2012. p. 158
