Is redundancy pay taxed in Ireland?

What is tax-free, and what is taxed?

When your job ends by redundancy, you may receive several different payments. Revenue taxes them differently.

Payment	How it is taxed
Statutory redundancy	Tax-free: no income tax, USC or PRSI
Extra lump sum from your employer (ex gratia), up to your exemption	Tax-free
Extra lump sum, the part above your exemption	Income tax and USC, but not PRSI
Pay in lieu of notice provided in your contract	Taxed as pay
Final wages, holiday pay, public holiday pay	Taxed as pay
A lump sum your contract entitles you to	Taxable in full

The rest of this guide explains each line.

Is statutory redundancy taxed in Ireland?

No. The statutory redundancy lump sum is exempt from income tax and USC TCA 1997, s.203. Revenue’s manual adds that it is not subject to PRSI either.

The statutory lump sum is 2 weeks’ pay for each year of service plus 1 week, with weekly pay counted up to €600 RPA 1967, Sch. 3, para. 1. For the full method, see statutory redundancy in Ireland: who qualifies, the €600 cap, examples.

Revenue’s manual also says statutory redundancy has no impact on the exemptions for extra payments. You keep the full exemptions below for any amount your employer pays on top.

How is an extra redundancy payment taxed?

Many employers pay more than the statutory minimum, for example in a voluntary redundancy scheme. This extra amount is often called an ex gratia payment. Revenue taxes only the part above your exemption. You get the higher of two options:

• the basic exemption, plus the increased exemption if you qualify; or
• the Standard Capital Superannuation Benefit (SCSB).

The basic exemption

The basic exemption is €10,160, plus €765 for each full year you worked for your employer. A payment that does not exceed it is tax-free.

You can use the basic exemption more than once, for payments from different, unconnected employers, as long as you stay within Revenue’s lifetime limit of €200,000.

The increased exemption

You may add €10,000 to the basic exemption if:

• you have not received a payment above the basic exemption in the previous 10 years; and
• you are not in an occupational pension scheme, or you are in one and give up your right to a tax-free lump sum from it.

If you keep a tax-free lump sum from your pension, it is taken off the extra €10,000. If that pension lump sum is more than €10,000, there is no increase. The increase can be given only once in 10 years.

The SCSB

The SCSB is one fifteenth of your average yearly pay over your last 36 months, multiplied by your full years of service. Any tax-free lump sum from your work pension, received or due, is taken off. The SCSB often helps people with long service and higher pay.

What is a full year of service?

Only complete years count, and the €765 cannot be split for part of a year. Revenue’s manual says that service before and after a break is added together. A career break and a temporary lay-off do not count. Maternity leave and parental leave are not treated as a break. Part-time years count as full years.

These rules are not the same as the statutory redundancy rules, which count part years and different absences.

Worked example

Aoife started on 15 March 2019. Her job was made redundant and her last day was 23 October 2026. She earned €850 a week, and her pay did not change in her last 3 years. She is not in a work pension scheme.

Her statutory redundancy is 16.24 weeks × €600 = €9,744.00. It is tax-free.

Suppose her employer also offers an extra €20,000 lump sum. Her full years of service are 7 (15 March 2019 to 15 March 2026).

Exemption	Calculation	Amount	Taxable part of €20,000
Basic	€10,160 + 7 × €765	€15,515.00	€4,485.00
Basic + increased	€15,515 + €10,000	€25,515.00	€0.00
SCSB	€44,200 ÷ 15 × 7	€20,626.67	€0.00

Her average yearly pay is €850 × 52 = €44,200. If she qualifies for the increased exemption, or uses the SCSB, the whole €20,000 is tax-free. With the basic exemption alone, €4,485.00 would be taxed.

This example is fictional. Your own exemption depends on your service, your pension and any earlier payments.

Is pay in lieu of notice taxed?

It depends on your contract.

• If your contract provides for pay in lieu of notice, it is taxed as pay. The exemptions do not apply.
• If your contract does not provide for it, the payment may form part of the termination payment and may qualify for the exemptions.

For Aoife, 4 weeks’ pay in lieu provided by her contract would be 4 × €850 = €3,400.00, taxed like normal pay. For notice rules, see notice period in Ireland.

Holiday pay and final wages

Pay for annual leave not taken, a public holiday and your last wages are normal pay. They are taxed through payroll in the usual way, even when they are paid with your redundancy. More generally, a lump sum paid under the terms of your contract is taxable in full. To check each line of your final pay, see your P45 and final pay.

Is the taxable part subject to PRSI?

Revenue’s manual says the taxable part of a termination lump sum is liable for USC but not PRSI. Income tax applies too.

Who applies the exemption?

Your employer applies the exemption through payroll, without asking Revenue first. It must be satisfied that you meet the conditions. If you are unsure which exemption was used, ask your employer to show the tax-free and taxable parts.

If your employer did not grant an exemption you think applies, you can claim it from Revenue through myEnquiries in myAccount.

Does the calculator work out the tax?

No. Our calculator works out your statutory redundancy, which is tax-free. It shows gross amounts only and does not calculate income tax, USC or PRSI on your other payments. For your own tax position, Revenue answers questions through myEnquiries. Citizens Information and a tax adviser can also help.

Your next steps

1. Check, free. Use the redundancy calculator to confirm the tax-free statutory part, separate from any extra payment.
2. Claim in writing. If your statutory redundancy has not been paid, or has been paid short, you can prepare a redundancy claim letter to your employer yourself (€9, or €19 with a dated follow-up letter and reminders). See also your employer won’t pay statutory redundancy.
3. The next step. If your employer still does not pay, you make a complaint to the WRC online yourself. A free preparation sheet, available from the calculator’s results without any purchase, lists what the online form asks for.