# tax free amount of redundancy



## viztopia (19 Aug 2010)

i am trying to calculate the tax free amount of redundancy that would be available to a person been made redundant. the basic exemption is €10,160 plus €765 for each year of work. can you add the statutory redundancy amount to this basic exemption amount (statutory redundancy is the number of years worked multiplied by 2 then by €600 for each year? )


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## Pat Bateman (19 Aug 2010)

viztopia said:


> i am trying to calculate the tax free amount of redundancy that would be available to a person been made redundant. the basic exemption is €10,160 plus €765 for each year of work. can you add the statutory redundancy amount to this basic exemption amount (statutory redundancy is the number of years worked multiplied by 2 then by €600 for each year? )


 
Yes, you add the statutory redundancy element of the redundancy payment to the higher of the basic exemption, increased exemption and SCSB to arrive at the 'non taxable element' of the redundancy payment. Statutory redundancy is not taxable. Also, unlike (say) the basic exemption calculation, you calculate the entire period of work in years (e.g. 5 years and 9 months equals 5.75 years). Then it's 2 weeks salary (subject to a maximum of €600 per week) per year of service plus 1 bonus week as well.

Ex gratia non statutory redundancy (i.e. a payment not covered by the employee's contract) may also not be taxable, subject to certain limits.

The 'tax free' element of the non statutory redundancy is basically the higher of the basic exemption (as per your post), the increased exemption (the basic exemption plus €10,000 less any tax free lump sum payment received or receivable under an approved pension scheme) and the SCSB.

The SCSB is [ (A x B)/15 ] - C, where A is the employee's average annual salary for the 36 months prior to their cessation date, B is their number of years of complete service and C is the amount of any tax free lump sum received or receivable under an approved pension scheme.

Restrictions may apply in relation to the increased exemption if the employee has received a termination or redundancy lump sum during the previous 10 years.  Top slicing relief may also be available - Essentially if the tax rate applied to the taxable element of a redundancy payment is higher than the employees effective tax rate for the previous 3 years, Revenue should refund the difference.


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## Jano (19 Aug 2010)

How is the average rate of tax calculated for top slicing relief? Is it net tax paid/total taxable income for each of the past three years?


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## Pat Bateman (20 Aug 2010)

Jano said:


> How is the average rate of tax calculated for top slicing relief? Is it net tax paid/total taxable income for each of the past three years?


 
Pretty much.

Say an individual had taxable income of €50,000, €60,000 and €70,000 for 2007, 2008 and 2009 and paid income tax (PRSI etc should be ignored) of €10,000, €15,000 and €25,000 respectively. The individual's then receives a taxable redundancy payment during 2010. If the income tax rate applied to the termination payment is greater than 27.78% (i.e. €50K/€180K), a refund of the difference should arise.


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## Jano (22 Aug 2010)

Thanks Pat for confirming that


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