Payment of the surrender value as extraordinary income

Payment of the surrender value of an annuity insurance policy due to termination of employment does not fall within the tax allowance for extraordinary income.

For extraordinary income such as remuneration for activities lasting several years, the law provides for a tax reduction in order to mitigate the progression effect. However, the Cologne Fiscal Court is convinced that this provision does not apply to the payment of the surrender value from a pension insurance policy due to the termination of the employment relationship and the insurance contract. The Federal Fiscal Court (Bundesfinanzhof) had already ruled years ago that remuneration for activities over several years is only considered extraordinary income if the accumulation of income does not correspond to the contractual or typical course of the respective type of income. However, the capital payment after termination was neither contrary to the contract nor atypical, but was provided for in the contract from the outset in the event of termination.