Taxation of redundancy payments

Did you know that statutory redundancy is calculated on the basis of 2 weeks pay per year of service plus one additional week? The maximum weekly pay figure is €600. Statutory redundancy payments under the Redundancy Payments Act 1967 to 1991 are exempt from tax. 

The Redundancy Payments Act 1967 to 1991 applies to persons in employment for at least 24 months.

Termination lump sums are subject to the following exemptions:

  • Basic exemption – €10,160 plus [€765 x No. of complete years of service]
  • Increased exemption of €10,000 – provided the employee hasn’t claimed this relief within the previous 10 years. If the employee is entitled to a lump-sum from a pension scheme then the additional exemption is reduced by the value of the lump-sum.
  • Standard Capital Superannuation Benefit (SCSB) – is an alternative to the calculation of the increased exemption. This calculation for longer-service employees may result in an increased tax free exemption.

Note that the lump-sum payment less exemptions is liable to income tax and USC. Redundancy payments are not liable to PRSI.

Any element of the lump-sum relating to statutory redundancy entitlements is exempt from all taxes.

The Tax Man can assist in ensuring lump-sum payments are correctly calculated for tax purposes.

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