Redundancy and tax

cp6_ie

Hi,

I would like to ask if anyone could clarify how tax is calculated in case of redundancy. I found some pages on revenue.ie and citizen information, but still need explanation.

I have been made redundant, and I'm currently on the notice period. It means that I have received my regular salary for February, my termination date is by the end of March, so I'm currently on notice period. I was told by company HR that I will receive "Compensation payment for loss of notice" (equal to my monthly salary) "Less any deductions for tax and NI contributions". Then, I am also supposed to receive "Redundancy Pay". for this part, there is no "Statutory Redundancy Pay", as I was less then 2 years with the company. However, for this part there is "Additional Enhanced Payment" (again, equal to my monthly salary). For this part, it doesn't say anything about tax deductions. The third part consists of my unused holidays, that are supposed to be taxed.

My questions are:

1. Is "Compensation payment for loss of notice" taxed just as normal monthly salary, so I will receive the same amount as any other month ?
2. How is "Redundancy Pay" - "Additional Enhanced Payment" taxed ? As I'm paying higher tax rate (41%), is it taxed just as any other bonus (52%) or is there any tax relief ? How about PRSI and USC ?
3. How are unused holidays taxed in this case ?

Any answer that would clarify these things would be very much appreciated. The reason I don't ask HR is that they are not always responsive, and I'm not really confident that I will receive correct answer.

Thanks

Arbiter of Good Taste

HR would probably not know anything about tax, so no use asking them.

As a rule of thumb you are contractually obliged to your salary and holidays per your employment contract, so compensation for loss of notice and unused holidays are likely to be taxed as normal salary.

If the redundancy pay is not contractually part of your salary then this should come under the rules for redundancy payments and should be taxed differently. You should get an element tax free and then the remainder should be subject to tax and USC (but, IIRC, not PRSI). Do you have an in-house tax team who might have a friendly person? Otherwise see if your company will pay for a review with their accountants to calculate the tax.

cp6_ie

Thank you Arbiter.

You made this clear enough.

The company outsourced Payroll, and that external company already has a history of mistakes. I hope this redundancy payment is subject of basic exemption.