A redundancy payment is usually two things in one envelope. The first is statutory redundancy, the amount the law says your employer must pay, and it is never taxed. The second is anything on top: an ex-gratia payment — Latin for “as a favour”, money the employer chooses to add — which is taxable except for whatever one of three reliefs shelters. Which relief applies depends on your pay, your service and your pension, so two colleagues leaving on the same day can face very different tax bills. The redundancy tax calculator runs all three reliefs on your figures; this guide is about which one is likely to be yours, and why.
What is always tax-free, and what can be
Statutory redundancy is two weeks’ pay for every year of service plus one extra week, with each week’s pay capped at €600. Four gates, and you must pass every one — the Department’s Redundancy Payment Scheme page lists them under “How to qualify” and, further down, the rate of payment:
- at least 104 weeks of continuous employment with the same employer;
- in employment that is fully insurable for social insurance (PRSI);
- aged 16 or over, with no upper age limit;
- and the job itself must no longer exist.
Statutory redundancy is exempt in full from income tax, from USC (the Universal Social Charge, a separate charge on income with its own bands) and from PRSI (Pay Related Social Insurance, the contribution that builds your State Pension and benefit entitlements), does not use up any of the reliefs below and does not count towards their lifetime cap. In Revenue’s example, 18 full years with every week at the €600 cap gives €22,200, none of it taxed.
Everything else in the package is pooled and tested against the reliefs: the ex-gratia top-up, a non-contractual payment in lieu of notice, a company car you keep. Whatever the winning relief does not cover is taxed as income. The three reliefs are the Basic Exemption, the Increased Exemption and the Standard Capital Superannuation Benefit (SCSB). You get the higher of (Basic + Increased) or SCSB, never the two added together, and there is a lifetime cap of €200,000 on the relief you can ever have across all redundancies, counting anything an earlier employer’s payment used up.
The decision: three reliefs compared
| Relief | What it is | Formula | Who tends to win with it |
|---|---|---|---|
| Basic Exemption | The floor everyone gets | €10,160 plus €765 for each complete year of service | Short service or modest pay; anyone who cannot get the increase and whose SCSB comes out low |
| Increased Exemption | The Basic Exemption plus up to €10,000 | Basic + €10,000, reduced euro for euro by your tax-free pension lump sum (the RCS, explained below) | Not in an occupational pension scheme — or you have irrevocably given up your right to a lump sum from it — and no claim above the Basic Exemption on an earlier redundancy in the previous 10 years |
| SCSB | A relief that scales with pay and service | (A × B ÷ 15) − C: A is average annual pay over your last 36 months, B is complete years of service, C is the RCS | Long service and solid pay; it wins in every long-service example from Revenue’s manual that the calculator’s test set reproduces, unless a big pension lump sum drags C up |
Which one is likely yours
- No pension scheme, no earlier claim. Basic plus the full increase is your floor. Revenue’s example: 35 complete years with no scheme gives a Basic Exemption of €36,935, the increase of €10,000 in full, €46,935 in all. Still run SCSB — with that much service it can be higher.
- In a scheme, with a tax-free lump sum of €10,000 or more. The increase is wiped out, so the contest is Basic against SCSB, and with long service SCSB tends to win.
- In a scheme, with a lump sum below €10,000. You keep part of the increase. In Revenue’s package example an RCS of €7,000 leaves an increase of €3,000, so Basic plus Increased comes to €26,930 — but SCSB at €31,000 still won.
- Short service, modest pay. SCSB is a multiple of pay and years, so with few of either it can fall below the Basic Exemption, whose fixed €10,160 is the floor.
- Very long service and high pay. The formula can exceed the lifetime cap; relief stops at €200,000 however large the answer. Revenue’s example (manual section 3.8): A of €180,000, 39 years and an RCS of €200,000 gives €268,000 on the formula, capped to €200,000.
- An ex-gratia lump sum in the past. The relief you had then comes off the €200,000 lifetime cap now, and a claim above the Basic Exemption can bar the Increased Exemption this time.
Put your figures into the redundancy tax calculator to see the three side by side with the winner marked; whether you count as a scheme member, and what lump sum you could take, are questions for the scheme administrator or Revenue.
SCSB worked through with Revenue’s example
Revenue writes the formula as (A × B ÷ 15) − C (Tax and Duty Manual Part 05-05-19, section 3.5).
- A is your average annual pay for the 36 months before you leave, counting taxable extras such as bonuses, overtime and benefit-in-kind. If you were there for less than that, average over the whole period.
- B is complete years of service. A part-year is dropped, not pro-rated.
- C is the Relevant Capital Sum (RCS): the tax-free lump sum you have taken, or can take in future, from the employer’s pension scheme, at its present value. Nil if there is no such lump sum.
The Citizens Information example, which follows Revenue’s formula:
| Input | Figure |
|---|---|
| Pay over the last 36 months | €180,000 |
| A — average annual pay | €60,000 |
| B — complete years of service | 20 |
| C — tax-free pension lump sum (RCS) | €20,000 |
| Ex-gratia lump sum received | €100,000 |
SCSB is €60,000 × 20 ÷ 15 − €20,000 = €60,000.
The Basic Exemption for the same person is €10,160 + €765 × 20 = €25,460, and the Increased Exemption adds nothing because the pension lump sum is larger than the increase (the second trap below). SCSB is the higher figure, so it is the relief that applies, and the taxable part of the lump sum is €100,000 − €60,000 = €40,000.
The two traps
Service is counted two different ways
Statutory redundancy counts service to the day and turns it into a decimal number of years. The tax reliefs count complete years only.
The Department of Social Protection’s worked example has an employee with 23.11 years of service — the fraction is the odd days, kept rather than rounded away. That becomes a multiplier of 47.22 weeks’ pay, and at the €600 cap the statutory payment is €28,332. For B in the SCSB formula, and for the years in the Basic Exemption, the same person uses whole years only; the fraction disappears. So never lift the years figure from the statutory calculation, or from the employer’s letter, into the tax formula.
A pension lump sum shrinks the reliefs, and can wipe one out
The RCS appears twice. In SCSB it is C, subtracted euro for euro. In the Increased Exemption it reduces the €10,000 increase euro for euro, so an RCS of €10,000 or more removes the increase entirely.
Revenue’s example: Jenny has 18 complete years, an ex-gratia lump sum of €60,000 and an RCS of €11,000. Her Basic Exemption is €23,930. The increase is €0, because her RCS is above €10,000. Her SCSB is €27,000, which beats the Basic Exemption, so €60,000 − €27,000 = €33,000 is taxable.
Two cautions. The RCS includes a lump sum you could take later, not only one already drawn, so being in a scheme matters even if you have taken nothing. And the RCS has its own separate ceiling in Revenue’s manual — the same figure as the €200,000 lifetime cap on the reliefs, but a different rule; do not run the two together.
What happens to the taxable excess
Whatever is left after the winning relief is taxed as income of the year you leave. Income tax applies and so does USC; PRSI does not. If you already pay tax at the higher rate, all of the excess is charged at the higher rate — Revenue’s manual says so in as many words. Top-slicing relief, which you may still see mentioned, is abolished; do not budget for it. The PAYE take-home calculator shows the income tax and USC bands the excess is taxed under.
Before you sign
- Split the letter in two. Statutory on one side, everything else on the other. The statutory figure should be two weeks per year plus one week at no more than €600 a week, service counted to the day; the Department’s worked examples show the arithmetic.
- List the whole ex-gratia side. Revenue’s package example pooled the non-statutory redundancy, a non-contractual payment in lieu of notice and a company car into one lump sum of €44,765, keeping the €22,200 statutory payment separate; €13,765 of it ended up taxable. Unsure what notice you are owed? See probation and minimum notice.
- Count your complete years yourself. Drop the fraction.
- Get your RCS in writing. Ask the scheme administrator for the tax-free lump sum figure, taken or available; it sets C and decides the increase.
- Check for an earlier claim. Relief on a previous redundancy comes off the €200,000 lifetime cap and can bar the Increased Exemption.
- Run the three reliefs, then read the winner against Revenue’s Tax and Duty Manual on redundancy lump sums, section 3 onwards, which is the rule book and the source of the examples above.
- Unusual facts go to a person, not a page. A waiver, a prior claim, a lump sum near the cap or a dispute over service dates is a matter for Revenue or a qualified tax adviser.
One last thing to hold onto: the figures above are not typed into this page — they are read from the calculator’s own rate table at build time, and the sources page shows the official publication and retrieval date behind each one.