WITH the increased degree of some economic uncertainty abound, many people will be seeking advise as to what course of action to take should they find that their jobs under threat.
Furthermore, many, in recent weeks, have been forced to look into a bleak future as the job opportunity door closes behind them and they are left with a redundancy cheque in hand and a very long road ahead.
Timely advise, for those found in such a predicament comes from Mark McCutcheon, an independently practicing registered taxation consultant and an Associate of the Irish Taxation Institute. Mark tells us of issues pertaining to redundancy and your entitlements and opportunities to look out for in the future.
Taxation and Termination (redundancy) payments
“It was recently announced by the Central Statistics Office that unemployment is up 121,000 in the last 12 months. According to Department of Enterprise statistics approximately 40,000 of these people received statutory redundancy payments during 2008.”
With redundancies continuing to grow, Mark McCutcheon reminds readers of their redundancy entitlements and the taxation treatment of redundancy payments.
Statutory Redundancy
“Individuals aged between 16 and 66 and in full time employment for two continuous years (104 weeks) which is insurable for all PRSI benefits are entitled to receive a statutory redundancy payment on being made redundant.
The statutory redundancy payment that an employee can receive depends on length of service and normal weekly pay (gross weekly wage, average regular overtime and pay in kind). The amount payable is capped at 2 weeks pay for every year of continuous employment plus and additional bonus week with a maximum weekly pay of 600 euro. An employer can exceed this maximum weekly figure if desired and would be known as an ‘ex-gratia payment’.”
Taxation of redundancy payments
“1. Statutory redundancy payments are not taxed.
2. Where the termination payment exceeds the statutory payment, i.e. the employee receives an “ex-gratia” payment, as outlined above, an additional tax exemption can be availed of so that a further amount on top of the statutory element of the termination payment is also received tax free. This additional tax free element of the package can be one of 3 separate amounts, calculated using rules set out in tax law, depends on length of service, remuneration in the 3 years prior to being made redundant and whether the employee has pension entitlements. The amount used for the tax exemption will depend on the facts and circumstances of each employee.
3. Where a termination payment exceeds the maximum tax free amounts calculated under points 1 and 2 above a portion of the package will be taxed through the employer’s payroll procedures, possibly at the 41% rate of tax, before the cheque is given to the employee.”
What are your options if you pay tax on your redundancy payment?
“Many employees in receipt of termination payments will be left asking what their options are if the termination payment suffers tax. Many will wonder if it is possible to reduce the tax that has been paid on the payment or they may not even be aware of the possibility to reduce the tax paid on the termination package. “
Tax reliefs which can reduce the tax on termination (redundancy) payments
“Individuals in receipt of termination payments that have been taxed by the employer should note that there is special tax reliefs available which serve to reduce the tax liability suffered on the termination payment. It should be noted though that it is generally only possible to use these tax reliefs after the end of the year in which a termination payment is received. Therefore individuals receiving termination payments in 2009 which suffer tax will not be able to use these tax reliefs until January 2010 at the earliest. These tax reliefs may result in the individual receiving a refund of Income Tax from the Revenue Commissioners. The amount of any refund will depend on the level of income from all sources, e.g. investment income, rental income etc, that the employee had for the year in which they received a redundancy payment.”
Mark McCutcheon operates as an independent registered taxation consultant and can be contacted at 061-325980 (office hours) or 087-6663893 (non office hours). An email address can be provided when contacted.
