You could be losing thousands in Tax if you don't choose the correct one!!

In these employment uncertain times where staff are made redundant right, left and centre in companies such as Microsoft, Accenture, Amazon, Meta, Twitter, Indeed, Stripe and other global corporations, it is necessary to know your tax relief on lump sums in Ireland.

In Ireland, you are entitled to receive a Statutory redundancy payment after you have 2 years’ (104 weeks) service in your job. The statutory redundancy payment is based on a calculation using your pay and your length of service. The statutory redundancy payment is tax-free.

To calculate your statutory redundancy payment you can visit the official Social Welfare website at https://www.mywelfare.ie/redundancycalculator#calcPanel or use our calculator on the main page.

Anything over the statutory redundancy is considered as a top-up payment or an ex-gratia payment. It is a non-statutory redundancy payment paid by your employer, which is over and above the statutory redundancy payment. There is a tax relief available on ex-gratia payments and the relief can be calculated based on two different methods.

Please note that payment in lieu of notice is not considered as a redundancy thus, it is fully taxable and does not qualify for exemption or relief if your contract of employment provided for it. If this pay is not included in your contract then it may be included in the lump sum termination payment and may qualify for tax exemptions.

The tax free lifetime limit is €200,000.

For the ex-gratia redundancy lump sum payments there are two options available, I have created a bespoke calculator in Excel to show the exact difference on the amount you have to pay tax depending on your circumstances.

Method 1: Basic Exemption & Increased Exemption combined

The Increased Exemption cannot be applied if you have already claimed redundancy in the past 10 years or you are receiving a lump sum pension.

Method 2: Increase for Standard Capital Superannuation Benefit (SCSB)

If you are receiving a lump sum pension you must subtract the sum from the SCSB relief.

Companies do hire consultants for mass redundancies to advise on best methods for employees, however not only once have I seen a client come to me where the calculations done were putting them in a disadvantaged tax situation and we had to go back and forth with Revenue to change the method and reduce the clients' tax implications.

Employees especially in tech companies would usually be considered higher income earners and if they have quite a few years under their belt the SCSB method of calculation of the taxable amount on their lump sum payment would in many circumstances be more beneficial.

The excel sheet calculator has two methods of calculations so you can see which one is more beneficial for your circumstances. Please use the calculators in a Desktop browser and take your time inputting the dates.

Once €10 Revolut payment is made to 0851318922, password is provided.

This is what the calculator looks like (blurred):

Clients also ask me if they can claim Social Welfare Jobseekers after made redundant.

Some restrictions apply, the main one is that if you are under 55 years of age and received more than €50,000 in redundancy payment then you are disqualified from receiving a jobseeker's benefit for a certain time - see below:

If you have any questions please feel free to contact us.