Tax on Redundancy and Termination Payments in Ireland

If you have been made redundant or received a termination payment in Ireland, one of the first questions you will ask is: how much of my lump sum will I actually keep? The answer depends on the size of your payment, your years of service, and which tax exemptions apply to you.

In this guide, we explain how redundancy and termination payments are taxed in Ireland, the three key tax exemptions available, and how to calculate your estimated take-home amount. Whether you have received statutory redundancy only or a larger ex-gratia package, this guide covers everything you need to know.

Is Statutory Redundancy Taxable in Ireland?

Statutory redundancy is completely tax-free. No Income Tax, USC, or PRSI applies to your statutory redundancy payment. This is the legal minimum your employer must pay if you have at least two years of continuous service.

Statutory redundancy is calculated as:

• Two weeks' gross pay per year of service, plus one additional bonus week
• Weekly pay is capped at €600 (gross pay above €600 per week is not counted)
• You must have at least 104 weeks (2 years) of continuous, insurable employment

For example, if you worked for 10 years and earned €700 per week, your statutory redundancy would be (2 x 10 + 1) x €600 = €12,600. The €600 weekly cap applies because your pay exceeds it.

You can check your statutory entitlement using the redundancy calculator on MyWelfare.ie.

The Ex-Gratia Payment: Where Tax Applies

Many employers pay more than the statutory minimum. This additional amount is called the ex-gratia payment (sometimes referred to as a severance or enhanced redundancy payment). It is the ex-gratia portion that may be subject to tax.

The tax treatment works like this:

1. Start with your total lump sum payment from your employer
2. Subtract the statutory redundancy amount (this part is always tax-free)
3. The remainder is your ex-gratia payment
4. Apply the best available tax exemption to shelter as much of the ex-gratia as possible
5. Any amount not covered by an exemption is taxable

Important: Contractual payments such as pay in lieu of notice (PILON), outstanding holiday pay, or salary arrears are not qualifying termination payments. These are taxed as normal employment income through payroll and do not benefit from the exemptions below.

Three Tax Exemptions That Could Save You Thousands

Revenue allows you to choose the most favourable of three exemptions to reduce the taxable amount of your ex-gratia payment. You automatically get whichever gives you the best result.

1. Basic Exemption

The Basic Exemption is €10,160 plus €765 for each complete year of service with the employer who made the payment.

Formula: €10,160 + (€765 x complete years of service)

For someone with 10 years' service, the Basic Exemption is €10,160 + (€765 x 10) = €17,810.

See Revenue's guide to the Basic Exemption for full details.

2. Increased Exemption

The Increased Exemption adds €10,000 on top of the Basic Exemption. However, it is only available if you meet two conditions:

• You have not claimed a tax-free termination payment in the previous 10 tax years
• You are not a member of an occupational pension scheme, or if you are, you irrevocably give up your right to receive a lump sum from the scheme

Formula: Basic Exemption + €10,000 - any tax-free pension lump sum already received

If you received a pension lump sum, it reduces the Increased Exemption. If the pension lump sum exceeds the Increased Exemption, this option may not be beneficial.

3. Standard Capital Superannuation Benefit (SCSB)

The SCSB is often the most valuable exemption for higher earners or people with long service. It shelters a portion of your ex-gratia payment based on your average pay and years of service.

Formula: (Average annual pay x years of service / 15) - any tax-free pension lump sum

Average annual pay means your average annual Schedule E income from the employment over the last 36 months (3 years) before termination.

For example, someone earning €60,000 per year with 12 years' service and no pension lump sum would have an SCSB of (€60,000 x 12 / 15) = €48,000.

Revenue's SCSB guide explains the full calculation.

Worked Example: How Much Tax on a €60,000 Redundancy Package?

Let us work through a real example. Sarah has been made redundant after 8 years with her employer. She earns €80,000 per year and has received a total lump sum of €60,000. She has no pension lump sum and qualifies for the Increased Exemption.

Step 1: Calculate Statutory Redundancy

(2 x 8 + 1) x €600 = €10,200 (her weekly pay of €1,538 exceeds the €600 cap)

Step 2: Calculate Ex-Gratia

€60,000 - €10,200 = €49,800

Step 3: Calculate Each Exemption

• Basic Exemption: €10,160 + (€765 x 8) = €16,280
• Increased Exemption: €16,280 + €10,000 = €26,280
• SCSB: (€80,000 x 8 / 15) = €42,667

Step 4: Apply the Best Exemption

The SCSB (€42,667) is the highest, so Sarah uses this.

Step 5: Calculate Tax

Taxable amount: €49,800 - €42,667 = €7,133

• Income Tax at 40%: €7,133 x 0.40 = €2,853
• USC at 8%: €7,133 x 0.08 = €571
• PRSI: €0 (PRSI does not apply to qualifying termination lump sums)

Total estimated tax: €3,424

Estimated net take-home: €56,576

The Income Tax and USC rates used depend on your personal circumstances. If you are a standard rate taxpayer (20%), or if your USC rate differs, your tax bill will be different. Use our salary calculator to understand your current tax position.

The €200,000 Lifetime Cap

There is a lifetime limit of €200,000 on the total tax-free amount you can receive from termination payments. This cap applies to the exemption amount, not the total payment.

If you have received previous tax-free termination payments from other employers, those amounts count toward your €200,000 lifetime cap. Any exemption above this cap is not available, and the excess will be taxable.

Citizens Information provides a helpful overview of how the lifetime cap works in practice.

USC and PRSI on Redundancy Payments

The taxable portion of your termination payment (after exemptions) is subject to both Income Tax and USC at your marginal rates. However, PRSI does not apply to the taxable element of a qualifying termination lump sum under Section 123 of the Taxes Consolidation Act 1997.

The USC rates for 2025 and 2026 are 0.5%, 2%, 3%, and 8%. Which rate applies to your taxable lump sum depends on your total income for the year. You can read more about current USC rates and bands in our detailed guide.

Normal payroll items included in a termination package (such as pay in lieu of notice, outstanding holiday pay, or salary arrears) remain subject to standard Income Tax, USC, and PRSI through the employer's payroll.

How Pension Lump Sums Affect Your Exemptions

If you have received or are entitled to a tax-free lump sum from an occupational pension scheme, this reduces both the Increased Exemption and the SCSB calculation.

For example, if your SCSB would otherwise be €48,000 but you received a €28,000 pension lump sum, your effective SCSB is reduced to €20,000. Similarly, a large pension lump sum can reduce the Increased Exemption to zero or below (in which case it is treated as zero).

If you are considering taking a pension lump sum alongside redundancy, it is worth getting professional advice on the optimal sequencing. Our AVC calculator can help you understand the value of your pension options.

What to Do After Receiving a Redundancy Payment

If you have been made redundant, here are the key steps to protect your tax position:

1. Check your statutory entitlement using the redundancy calculator on MyWelfare.ie to confirm the statutory amount you should receive.
2. Review the tax treatment and understand which exemption (Basic, Increased, or SCSB) gives you the best result. If your payment is significant, consider a professional review.
3. Keep your P45 and all termination documents. You will need these when filing your tax return for the year of termination.
4. Register for Jobseeker's Benefit or Allowance if applicable. Visit your local Intreo centre or apply through MyWelfare.ie.
5. Update your tax credits with Revenue. If you start a new job, make sure your tax credits are transferred to avoid emergency tax. See our guide on emergency tax for more.
6. Consider your pension options. If you had an occupational pension, you may need to decide whether to leave it, transfer it, or take benefits. Read our pension options guide for a full overview.
7. File your tax return for the year you receive the payment. This ensures the correct exemption is applied and any overpaid tax is refunded.

Need Help With Your Redundancy Tax?

Redundancy tax calculations can be complex, especially when pension lump sums, the lifetime cap, or multiple exemptions are involved. Getting it wrong could mean paying thousands more in tax than necessary.

At Irish Tax Hub, our Termination Review service provides a full assessment of your redundancy or termination payment for a flat fee of €299 (including VAT). You will receive:

• A detailed calculation of your statutory redundancy, ex-gratia amount, and best exemption
• Precise Income Tax, USC, and PRSI calculations
• A personal consultation call to explain the results and answer your questions
• Three working day turnaround with a money-back guarantee

Learn more about our Termination Review service or get in touch at info@irishtaxhub.ie.