Income levy and health contribution on redundancy payment

[RichieRuin]

As mentioned in another post, I could soon be made redundant and if I am, my gross redundancy package will be around €160k. Some of this will be tax-free but since the gross amount is over €100k I was wondering if the 1% income levy will be payable on the taxable amount.

Also I have seen on the revenue.ie website that PRSI is not payable on the taxable amount but the Health Contribution is payable. Is this 2% and is it payable on the gross amount, the full taxable amount, or do any thresholds apply?

Assuming both of these taxes apply, would the following example calculations then be correct:

Gross amount: €160k
Tax-free amount: €100k
Taxable amount: €60k

1% income levy = €600 (i.e. 1% of €60k)
2% health contribution = €1,200 (i.e. 2% of €60k)

 

[Don_08]

The Health Levy is applied to the taxable amount only.

 

[jimbobman]

how would you get 160k in redundancy

 

[RichieRuin]

Thanks for the replies. Looking back over my initial post I realise I could hardly have come up with more confusing examples so for the benefit of anyone who might read this in the future can I take another stab at it.

1% income levy is payable up to €100,100 per annum. There is a levy of 2% on income from €101,101 to €250,120, and a levy of 3% on income in excess of €250,120.

The taxable amount in my previous example was €60k, so the 1% levy only applies.

If I were to take another example where the taxable amount was €120k, then would the following apply:

The 1% levy would apply to €101,100. Tax on this part would be €1,011.

The 2% levy would apply to €18,900 (being the difference between €120,000 and €101,100). Tax on this part would be €378.

Therefore, total income tax levy on €120,000 would be €1,389 (i.e. €1,011 + €378).

Is this correct?

 

[Sunny]

Do you mind me asking why you consider the first 100k tax free? I know someone getting a similar sum and they were told a much lower figure for the tax exempt amount. Sorry, I know it is off topic.

 

[RichieRuin]

deleted

 

[RichieRuin]

Statutory redundancy is tax-free and you can also claim an additional tax exemption that is one of the following:

€10,160 plus €765 for every year of service

or

the above plus an additional €10,000 minus any tax-free lump sum

or

Standard Capital Superannuation Benefit. I made a separate post about SCSB earlier, it's here: http://www.askaboutmoney.com/showthread.php?p=777534#post777534

I got the info for that post from the following doc on the Revenue website:

[broken link removed]

Everyone's situation is different but, as I understand it anyway, if you have long service and a relatively high salary, SCSB works out better than the other options.

 

[Homer]

Thanks for the replies. Looking back over my initial post I realise I could hardly have come up with more confusing examples so for the benefit of anyone who might read this in the future can I take another stab at it.

1% income levy is payable up to €100,100 per annum. There is a levy of 2% on income from €101,101 to €250,120, and a levy of 3% on income in excess of €250,120.

The taxable amount in my previous example was €60k, so the 1% levy only applies.

If I were to take another example where the taxable amount was €120k, then would the following apply:

The 1% levy would apply to €101,100. Tax on this part would be €1,011.

The 2% levy would apply to €18,900 (being the difference between €120,000 and €101,100). Tax on this part would be €378.

Therefore, total income tax levy on €120,000 would be €1,389 (i.e. €1,011 + €378).

Is this correct?

Hi Richie

Assuming that €100k is non-taxable, the balance of €60k will be taxable in the current year.

The amount of tax and PRSI/income levy that you will effectively pay on this balance will depend on how much other income you earn during 2009.

Initially you will be subject to income tax at your marginal rate plus 2% health levy plus 1% income levy. After the end of the current tax year, you will be able to claim top slicing relief based on the difference between the tax incurred on the taxable part of the severance payment (presumably 41%?) and your average tax rate over the past three years.

You won't be able to reclaim any of the 2% health levy and you may end up effectively paying an additional 0.5% if your total taxable income for the year (including the taxable element of the severance payment) exceeds €100,100.

The taxable part of the severance payment will also be subject to the new income levy. Initially, this will be at 1%, but the effective rate of levy paid may eventually be either 2% or 3% if it drives your total income over the 100k or 250k threshold.

Regards
Homer

 

[RichieRuin]

Hi Richie

Initially, this will be at 1%, but the effective rate of levy paid may eventually be either 2% or 3% if it drives your total income over the 100k or 250k threshold.

Regards
Homer

Thanks Homer. If I run up against this problem before the end of the year I won't be complaining

R.