Revenue Exemptions - Calculating Taxable Redundancy Payment

The Lump Sum received on Redundancy that exceed the Statutory Redundancy amount is assessable for Income Tax in the tax year in which it is received. However, this taxable amount is reduced by an allowed ‘exempt’ amount.
There are two possible methods to reduce the taxable amount of your redundancy payment and you are allowed whichever gives you the greater reduction in your taxable amount.
These two exempt amount calculation methods are:

• The Basic Exemption/Increased Exemption (BE/IE) method
• The Standard Capital Superannuation Benefit (SCSB) method

BE/IE

The Basic Exemption (BE) is calculated as €10,160 + €760 for each full year of service with the employer.

The Increased Exemption (IE) increases the BE by €10,000 where the individual is not a member of an occupational pension scheme, where no previous claims of a reduction in tax-free payments have been received in the previous 10 years.
If the individual is a member of an occupational pension scheme, the IE can still be given, but is reduced by the following factors:

• Any lump sum from the occupational pension scheme that you receive now.
• The present day value at the date of leaving employment of any tax-free lump sum that may be receivable at a future date (the pension scheme administrator will provide this).

Remember: A PRSA is not an Occupational Pension Scheme, so does not affect your eligibility for IE.

The total amount of the exemption allowable from the BE/IE method is the sum of the BE and IE amounts calculated.

Check your Taxes and Claim Refunds

If you have been made Redundant and paid taxes, then you must get your taxes checked or you could miss out on Refunds.

Get in touch with Red Oak Tax Refunds now for a Tax assessment, including your redundancy.

SCSB

This method calculates an exemption based on your recent earnings and number of years service. It allows relief of 1/15th of your average annual pay over the last 3 years, times the number of full years service. This exemption amount is reduced by the amount of any tax-free lump sum received/receivable from the pension scheme.

Calculation

The BE/IE and SCSB should both be calculated with the greater amount being used to reduce the Assessable Lump Sum to the Taxable Lump Sum.

Example:
You have completed 4 full years service:

BE = €10,160 + 760 x 4 = €13,200

You are not a member of an Occupational Pension Scheme AND have not received tax free redundancy lump sum in the previous 10 years.

IE = €10,000

So:

BE/IE exemption = €13,200 + €10,000 = €23,200

Your average pay over the last 3 years is €50,000
Then:

SCSB = 50,000/15 x 4 = €13,333

Since your BE/IE exemption is greater than the SCSB amount, we use the BE/IE amount to reduce your taxable Lump Sum

Your Lump Sum, after deduction of Statutory amount is €40,000 then

Taxable amount = €40,000 - €23,200 = €16,800

This Taxable Lump Sum is treated as Income from employment and taxed in the normal way.

For more information

• Find out about Top Slicing Relief 
• Use our Redundancy Calculator
• Read our blog posts on redundancy