Tax on redundancy payment

[walsh101]

A friend of mine who has been working for the same company for the last 26 years has been ask to take voluntary redundancy as they wish to reduce their work force. He was offered €80,000 approx and pays 42% tax and he was wondering how much of the payout would be taxed, as he is now in his forties with no specials skills as he got this job when he left school in 1981 and feels it will be difficult to get another job and is now unsure if he should take up their offer.

Any advice to help him come to an informed decision would be great.

 

[Welfarite]

If there are a number of redundancies, FAS sometimes take them "on board" and run a special course for such workers. He could ask his employer if they intend contacting FAS (and indeed SW) to see if they can offer some supports to help the laid-off workers get a new start. SW could be asked to send somebody into the workplace and goive an information talk about entitlements, etc. Also, he should be aware that if he takes voluntary redundancy, he may be disqualifed from "sigining on" for a number of weeks immediately after his date of leaving work.

 

[Nige]

Firstly, to the extent that any of the lump sum relates to statutory redundancy, that element is entirely ignored for tax purposes.

After the statutory sum, he will have the "ex gratia" payment. As he has such long service, he'll get about 40k of that tax free (presuming he qualifies for and claims the increased exemption). The remainder will be taxed at 43% (41% income tax and 2% health levies).

Alternatively, there is another calculation that can be used call the SCSB and it is often of benefit where a person has long service (as in this case). To calculate the tax free lump sum under the SCSB, you take the average earnings for the last three years, multiply it by the number of full years of service and divide by 15. This figure is then reduced by the lump sum he is entitled to from his pension scheme (if any and he can opt to waive the lump sum).

Again, the balance of the lump sum is subject to tax at 43%. However, at the end of the year, he should be able to reclaim some of the tax on this using what is called "top slicing relief".

The revenue leaflet ([broken link removed]) should help him understand the tax aspects.

 

[walsh101]

Thanks for your reply about FAS but he recently phoned them about new courses and most are booked out for the next couple of years !!!!!!!

You said that he may not be able to sign on for a couple of weeks but would he be eventually able to do so as it seems unfair to have worked and paid taxes for 26 years and now not be able to claim anything. I know that €80,000 sounds a lot but its really only 2 years pay and with a mortgage and everything else its not going to last long.

 

[walsh101]

Thanks Nige for giving me the info on the tax and I will pass this on to him, although he's not going to be a happy bunny when he sees that he'll have to pay tax of some of it at 43%. Sad to think the taxman gets his mitts on so much of your hard earned money especially at such a difficult time as my friend doesn't want to leave his job but feels that if he doesn't take the redundo he'll be forced out eventually.

 

[Welfarite]

Thanks for your reply about FAS but he recently phoned them about new courses and most are booked out for the next couple of years !!!!!!!

What I was saying was that FAS might engage with the staff and set up a special course geared for the redundant workers.

You said that he may not be able to sign on for a couple of weeks but would he be eventually able to do so as it seems unfair to have worked and paid taxes for 26 years and now not be able to claim anything. I know that €80,000 sounds a lot but its really only 2 years pay and with a mortgage and everything else its not going to last long.

I understand where you're coming from but the rules are there to stop people abusing the system by voluntarily giving up work in order to get SW. Claiming JB includes a delcaration that one is genuinely seeking work, which would be untrue if a person has just left a job voluntarily! If it wasn't a voluntary redundancy, it would a different story. Perhaps he should take his chances and hang on for another while?