Tax Free Lump Sum Termination Payment

I have, whilst on probation (i.e. with less than one year and no redundancy entitlement), been laid-off and am currently serving out my notice period until the end of February.

However, rather than work the rest of my notice period, my employer has offered me the opportunity to finish work now and pay me by way of lump-sum the salary (& payment for untaken leave) that I would earn by the end of my notice period.

This lump-sum payment would amount to approximately €6,000.

The incentive for me is that this payment would be tax free.

However, the downside is less clear. My employer has made mutterings to the effect that should I take this tax free lump-sum I would be unable to avail of any further tax free lump sum termination payments for the next 10 years! But my employer is unsure and said it was for me to check.

I have examined this and it appears that if I take this payment, I won’t be exceeding my “basic entitlement of €10,160 plus €765 for each complete year of service”. It seems that there is no limit on the number of termination payments one receives so long as one doesn’t exceed the “basic entitlement” in any one instance. There is no question of me eating into any kind of allowance by taking this payment.

But, I also understand that the “basic entitlement” is particular to each employer. If, I became re-employed by my current employer and subsequently dismissed or made redundant again by them and provided with a lump-sum payment, it would not be totally tax free.

Given the relatively small termination payment lump-sum that I am being offered (and consequently the relatively small savings on tax that I would achieve), I am hesitant to avail of this lump sum where there is any possibility that I might prejudice my ability to avail of a decent tax-free termination/redundancy payment in the future if I am ever unfortunate enough again to be laid-off.

I’d appreciate any guidance on this.

That doesn't sound like a redundancy payment so I can't see why it would affect any furture packages. He is basically just paying off the remiander of your contract. I am not about the tax implications of this so not sure about the 'tax-free' aspect. Someone else might know

The ten years rule only applies if you take the increased exemption rule was taken into account - ie your basic €10,165 plus an additional €10k. Won't apply in your case.


THough I'm not sure if this can be counted as a redundancy payment or not.

I'm in a similar position to the OP. In short you have 2 choices:

1. Something called top-slicing, whereby you can reclaim the additional tax you over-paid. For example I've been paid for Jan, and then a lump sum for Feb and Mar. However I was paid it all as January salary, at 40%, so I paid far more tax than if that amount was spread over the 3 months. I'm due back all the extra tax I paid had my employer kept me on the pay-roll to end-March.

2. Leaving statutary redundancy aside, as none of us were due any (not in job for more than 2 years), you are allowed up to €10k as a tax-free lump sum when made redundant, claimable only once every 10 years.

For both options, the Revenue will need to know what the Taxable Lump Sum was. The TLS for me is everything EXCEPT my normal Jan salary, which was Jan 1st - Jan 21st, the day I was laid off.
To calculate the TLS (assuming its not listed on you P45) I need a letter from my employer with a detailled breakdown of amount paid in Jan.
Say I was paid 15k in January's salary:
4k was salary for Jan1-21st
2k was payment for holidays carried over from last year
5k was an ex-gratia redundancy 'bonus'
4k was payment for my notice period (28 days of Febuary).

Leaving aside Jan's salary, I have 11k remaining. This 11k is my TLS. I should be able to claim 10k of that as a tax free lump sum, and reclaim the tax from the Revenue.

thats the plan anyway