Is redundancy taxable in Ireland? Statutory, ex gratia and SCSB

Statutory redundancy: tax free

The statutory lump sum, two weeks per year plus the bonus week at the €600 cap, is exempt from income tax, USC and PRSI in full (Citizens Information: taxation of lump sum payments). It does not use up any of the exemptions below.

Ex gratia payments: the exemptions

Basic exemption

€10,160 plus €765 for each complete year of service. Fifteen years' service shelters €10,160 + €11,475 = €21,635 of an ex gratia payment from income tax.

Increased exemption

A further €10,000 on top of the basic exemption, available broadly where you have not had a tax-free lump sum in the previous 10 years and any pension lump sum entitlement is limited or waived. Conditions apply; confirm with Revenue.

SCSB (Standard Capital Superannuation Benefit)

An alternative relief: (A x B / 15) minus C, where A is average annual remuneration for the last 36 months, B is complete years of service, and C is any tax-free pension lump sum received or receivable. Use whichever of SCSB or the basic exemption is higher.

Lifetime ceiling

Tax-free ex gratia termination amounts are subject to a €200,000 lifetime limit across all employments.

A worked example

Ten years' service, average salary €50,000, employer offers €20,000 ex gratia on top of statutory. Basic exemption: €10,160 + (10 x €765) = €17,810, leaving €2,190 taxable. SCSB: €50,000 x 10 / 15 = €33,333 minus any tax-free pension lump sum; with no pension lump sum the SCSB relief exceeds the payment and the whole €20,000 is tax free. USC and PRSI generally follow the income tax treatment of the taxable portion.

The €10,160, €765, €10,000 and €200,000 figures are long-standing Revenue amounts, stated here as at this page's updated date; verify current figures with Revenue or an accountant before agreeing a package. This is general information, not tax advice.